Life in asset management land will never be the same again. According to "The Future of Asset Management" by Maha Khan Phillips (CFA Institute Magazine, Jan/Feb 2013), operating margins are under pressure, asset growth is anemic, investors are moving away from equity around the world and competitive pressures are not going away. This is bad news to some but great news to those who recognize that tumult gives birth to profitable opportunities. Expanding on this notion of a lucrative brave new world, Ms. Phillips cites target date funds, asset allocation strategies and customized solutions as promising areas for further commercialization.
Ms. Phillips includes a section about the growing fiduciary management marketplace, adding that "fiduciary managers are posting significant gains in assets." As we know too well, some investors do not have the requisite size or skill (or both) to address increasingly complex issues, especially as the regulatory whirlpool is getting dangerously more active and likely to drown those who are unable to swim. Professional Pensions reporter Rachel Dalton cites KPMG's measurement of the UK fiduciary management market as having grown by 40% in 2012 or "the equivalent of 2.4%" of total retirement plan assets under management for 174 schemes. They estimate this annual increase equates to 23 billion GBP "under full fiduciary management" and an additional 30 billion GBP in "partially delegated" arrangements. See "Fiduciary management on the rise," December 13, 2012. Click to access the "2012 KPMG UK Fiduciary Management Market Survey," November 2012.
In "Regulatory Forecast Bodes Change" (onwallstreet, February 1 2013), Kenneth Corbin writes that financial professionals and their clients could be asked to deal with a flurry of new initiatives, including but not limited to, the following:
- Dodd-Frank and its many provisions;
- Expanded fiduciary duty as per the U.S. Department of Labor;
- Formal Self Regulatory Organization ("SRO") oversight by the Financial Industry Regulatory Authority ("FINRA") should it change its mind and decide to pursue this course of action again;
- Development of a uniform fiduciary standard by the U.S. Securities and Exchange Commission that imposes similar responsibilities for broker-dealers and advisers alike; and
- Commodity Futures Trading Commission ("CFTC") mandated guidelines and limits for users of derivatives, many of which are fiduciaries.
Hot off the press, one consulting firm affirms others' predictions with its call for a "growth in fiduciary management appointments" and "increased attention to risk and risk management" in 2013. Based on its study of retirement plans in 13 countries with a combined $29.75 trillion in assets, they further predict "sponsor-fiduciary tension" and "focus on risk management and governance of DC [defined contribution] arrangements." See "Global Pension Asset Study 2013," Towers Watson, January 2013.
Based on copious litigation and enforcement research and analysis I have conducted as a financial expert, it is clear that there is increased tension between investors and their asset managers and advisers. There are numerous legal actions being brought against investment management organizations and their leaders, many of which allege fiduciary breach and "excessive" risk-taking and/or insufficient oversight. Most attorneys with whom I have spoken expect to see more action in the dispute resolution area. Product development is fast occurring in the legal arena to exploit this trend. Witness the surge of third-party litigation financing firms and brokers such as BlackRobe Capital and Advanced Legal Capital.
The bottom line is that the global investment management industry of $120+ trillion in assets is experiencing an unprecedented upheaval of the status quo. For those executives who can connect the dots and have an appetite for innovation, start mining the gold. For those that are expecting a return to halcyon days of yore, strap yourself in for a bumpy ride.