The role of asset management looks to be changing as fund managers lose influence and experience falling profit margins. Asset management used to be the main bit of the value chain. If investment performance was good, it didn’t matter how far removed fund managers were from the end investor and it was more efficient for them to outsource administration and client communications.

Now, asset managers have found that they’ve lost some of their asset allocation role to financial advisers, discretionary managers, platforms and robo advisers who construct portfolios and other investment solutions, often under their own brands. These companies increasingly want asset managers to manufacture components that they will assemble into the consumer facing product. The asset manager is at risk of being a commodity manufacturer – a dangerously low-margin game, even if we’re not there yet.

It’s clear that there are too many small asset managers that can’t achieve scale and we would expect to see further consolidation. Moves to outlaw closet trackers could accelerate this and, while the continental European regulators have gone after them, many UK asset managers seem able to get away with it. Possibly factor investing offers a useful halfway house between active and passive, but it needs to offer the best of both rather than the worst – high costs and mediocre performance.

We believe that asset management is at a crossroads. More than ever, asset managers need to look out for the dangers and seek the changing opportunities. The role of asset management is the theme of this year’s Platforum ID – the Investment Distribution Conference. For readers of our newsletter who missed the early bird discount that expired earlier this week, you can get a discounted delegate pass with the following link.

Platforum ID – the Investment Distribution Conference is on 2nd October 2019 at ETC Venues, St Pauls, London, EC1A 4HD.