AI-led advice is 50bp lower than fee rate charged by non-robo advisors

AI-led advice is 50bp lower than fee rate charged by non-robo advisors

Retail investors are seeing the true value of AI-led investment management services. Customers in search of investment advice and financial planning are benefiting from the reduced costs associated with robo propositions. On average, their all-in fee of 25 bps is 50 bps lower than the rate charged by non-robo incumbents.

Investment managers are racing to offer digital financial services. This week, Blackrock invested €30 million (approx. £26 million) to buy a minority stake in Anglo-German digital investment manager, Scalable Capital. The company, which launched in the UK last summer, has since doubled its assets under management to €200 million (£176 million). Asset managers will need lower fund prices to compete, and this means lower costs for the end client. Investit provides business analytics to drive operational effectiveness. For more on this, please call Emma Haffenden on 020 7933 9900.

Source used –
FT Adviser: Blackrock takes stake in robo-adviser

72% of institutional ETF investors use bond ETFs adding to pressure on

72% of institutional ETF investors use bond ETFs adding to pressure on

Bond management is more complex than equity management. Investit benchmarking shows that there are more managers and support staff per £1bn of Fixed Income AUM, even though FI fee rates are typically lower.

If ETFs take money away from active managers the already precarious finances of many Fixed Income desks will tip over into losses. Investit’s benchmarking helps firms understand productivity, strategy by strategy. To inform business decisions Investit is creating a CFO’s dashboard to monitor the health of the firm in the light of anonymised competitor data.

To find out more about how benchmarking will help you manage your business or to join Investit’s CFO Forum on 27th June please call Richard Phillipson on 020 7933 9912.

Pension companies to fund millionaires' £4,000 safari holidays

Pension companies to fund millionaires' £4,000 safari holidays

Personal UK pension pots are now capped at £1m. For larger sums, the annual management charge on a managed pension unit is around 0.65% so our millionaire is spending £6,500 per year in charges. New entrants are coming with low price managed funds in the range of 0.17% to 0.22%. Platform providers are offering capped charges. They might charge 0.15% on an ad valorem basis on smaller amounts but if that is capped at £375 the effective rate on £1m is just 0.0375%. If the millionaire moves from a life and pension company’s managed fund to a lower priced fund and a fixed price SIPP platform, this will result in a loss of revenue of £6,500. The SIPP owner is better off by about £4,000 which will be enough for a good holiday every year of their retirement.

In order to compete, investment managers will need to become much more efficient. Investit has launched a new range of benchmarks to examine investment platform effectiveness. To learn more about improving front office effectiveness please call Emma Haffenden on 0207 933 9917.

82% Financial Services firms plan to increase FinTech partnerships over the

82% Financial Services firms plan to increase FinTech partnerships over the

Innovation in Financial Services is largely coming from outside the sector. Tech companies, e-retailers, and social media platforms are driving change, with a wave of new entrants offering partnering opportunities to investment management firms. Partnering with FinTechs is a key way for firms to develop alternative business strategies when serving their customers.

FinTech partnerships offer huge potential for investment managers, especially in the Front Office. Robo-advisers, which offer low-cost, automated online investment services, have been touted around the industry for some time, along with other automated business tools aimed at making it easier and cheaper to invest and trade.

In order to remain competitive, investment managers must embrace FinTech. Collaboration with these start-ups is important in order to avoid falling behind the curve, and help providers overcome legacy technological and customer communication issues. To learn more about enhancing business effectiveness in the Front Office, please call Emma Haffenden on 020 7933 9900.

Advice and asset management converge: online fund sales grow 9% in Q1

Advice and asset management converge: online fund sales grow 9% in Q1

In the first quarter of 2017, US online fund sales grew by 9%* while other distribution channels grew just 2%. A large part of that was a result of web-based advice, with a major contribution coming from Vanguard Personal Adviser Services and Schwab Intelligence Portfolios. In a bid to control the whole value chain, advisers and distributors such as Raymond James are turning into asset managers while T. Rowe Price and BlackRock are moving into financial advice.

“2022: A Disruptive Vision of Investment Management” has been chosen as one of our current research topics. Several firms have also asked us to look at the operational implications of returning to direct retail business. As we research, we want to hear the views of people who see a huge change coming, as well as sceptics who expect the world to be much as it is now. If you are feeling opinionated, please drop us a line to book a slot to tell us your vision. If you are not a member of Investit Intelligence and want to know more, please call Sarah on 020 7933 9905.
*Source: Broadridge

Is 4% a safe drawdown rate from a multi-asset retirement income fund?

Is 4% a safe drawdown rate from a multi-asset retirement income fund?

In 1994 William Bengen wrote his influential article ‘Determining withdrawal rates using historical data’. He concluded that 4% of the portfolio was the most that could be prudently drawn down each year from the typical US balanced portfolio and reliably provide for a 30-year retirement. Conditions have changed since 1994. This is a live topic as fund managers and advisers compete with annuity providers for 30 years of revenue.
Fund managers are producing multi-asset funds for and through and to retirement planning. As part of the Investit Intelligence paper on multi-asset funds, we will ask how firms are managing new product development and governance for these funds. We will be looking at the choice of diversifying exposures in multi-asset funds and the impact of these on returns, operational cost, and OCFs.
If you would like to contribute to the Intelligence multi-asset paper on this theme or any aspect of running multi-asset portfolios please contact Richard Phillipson. To learn more about Intelligence please contact Sarah Hughes.

85% of bond returns explained by starting yields: an issue for multi-asset

85% of bond returns explained by starting yields: an issue for multi-asset

Multi-asset managers offer propositions such as ‘equity returns with two thirds of the volatility’. Bonds form a significant part of their diversifying non-equity holdings. Now starting yields are low. 10 year US Treasuries , 10 year gilts and global aggregate ETFs (bonds roughly evenly weighted from AAA to BBB) yield 2.3%, 1.1% and 2% respectively. With these as starting yields fund firms cannot expect a repeat of recent returns. So, to achieve higher returns more firms may be looking to support derivatives for relative value bond trades.

The first item on the 17th May Multi-asset Forum agenda is ‘New Product Development: building in simplicity or complexity’. To register for the Forum or discuss your issues with multi-asset investing please call Richard Phillipson or Amanda Irwin on 020 7933 9912.
Source Morningstar: http://www.morningstar.co.uk/uk/news/158239/what-return-can-bond-investors-expect-over-the-next-10-years.aspx?ut=6 

 

Over ten years absolute return funds returned 32% while money markets gave

Over ten years absolute return funds returned 32% while money markets gave

Over the last ten years Absolute Return funds have returned 32% while the 20 – 60% and the 60 – 85% equity Mixed Asset Pension funds have returned 52% and 64% respectively. Under MiFID investment managers and advisers are both responsible for the suitability of products. The FCA is running a thematic review of absolute return funds.

At the Intelligence Multi-asset Forum on 17th May one of our topics is new product development, suitability and the role of different sorts of multi-asset funds in long term saving and retirement spending. To register for the Forum please click here. If you would like to contribute your thoughts for the Intelligence paper on issues such as NPD, acceptable drawdown, systems, risk, cost of OTCs in managing multi-asset portfolios please call Richard Phillipson on 020 7933 9912.

Global aggregate bond managers spend 40% of their time on non-core activities

Global aggregate bond managers spend 40% of their time on non-core activities

Investit works with Heads of Front Office Operations to find opportunities to improve investment team effectiveness. The goal is to give fund managers more time for view formation and portfolio construction (and client management if that is the firm’s service model). Investit analysis shows that core value adding activities make up only 70% of the working week for equity managers and 60% for fixed income. These are average figures; clearly some desks have even worse ratios of core to chore.
At our recent Front Office COOs’ Forum we showed where firms should look to release more time to value adding activities. Investit’s Investment Platform Effectiveness assessment examines these issues in more depth, strategy by strategy, to improve platform effectiveness.

£330k is the average revenue per employee at the world's largest employers

£330k is the average revenue per employee at the world's largest employers

Revenue per employee is one very useful way of measuring company efficiency

Using end 2015 figures, the “Global 5000 Database” calculates the average revenue per employee across all industries at £330K, while headline-grabbing technology firms can achieve over £1M revenue per employee.  Compared to this our average investment manager’s revenue per employee of £530K looks pretty good.

But Investit benchmarking results show that as firms grow their revenues, their revenue per employee falls, demonstrating that the internal processes are not scalable.

A relatively small investment firm with £250M of revenue may expect to have significantly higher revenue per employee, with £750K being quite normal.  However a larger one with revenues of £1.25bn will be doing relatively well if it exceeds £400,000 revenue per employee. This lack of scalability is seen even more clearly in the investment teams, with revenue per investment head halving from around £3M in the smaller firms to £1.5M in the larger ones.

BlackRock unit holders given 45% fee cut 

BlackRock unit holders given 45% fee cut 

BlackRock has moved two dozen funds from conventional active to systematic quantitative management. In the process they have dropped their prices, in the case of the Large Cap Core Fund from 88bps to 48 bps. These will be distinct from the range of stock-picking funds that will now become true conviction portfolios, still charged at the old normal rate.

To compete on price firms will need to compete on costs. The middle and back office have been the subject of many operational reviews. The focus is moving. Investit has a new benchmark for Investment Platform Effectiveness which shows CIOs and COOs where improvements could be made.

Less than 30bps for active global equity fund management?

Less than 30bps for active global equity fund management?

Bailie Gifford has reduced the charges on their £5bn Scottish Mortgage Investment Trust. The first £4bn will be run at 30bps with anything over that charged at 25bps. This is a long way below the 75bps-ish generally charged for active equity.

Some fund managers have told us they are not expecting price competition among active managers. They simply expect to share a smaller pie. This move suggests that the fight for the remaining slice of pie might be based on price as well as performance and service.

To compete on price, firms will need to compete on costs. The Middle and Back Office have been the subject of many operational reviews. The focus is moving. Investit has a new benchmark for Investment Platform Effectiveness which shows CIOs and COOs where improvements could be made.

 

60% of marketing content created is unused 

60% of marketing content created is unused 

Valuable content targeted to the right audience is fundamental to driving profitable client interaction. Yet, over 60% of content created by organisations is never used.

The overabundance of wasted content signals a breakdown in the process for content creation and distribution. It highlights the fact firms are wasting valuable resources that could be re-directed to useful, client-focused activities. It also suggests that content messaging may not be resonating with the intended audience and needs to change.

There is huge potential for firms to innovate through the font office, the back office and in corporate functions such as finance. There are a few firms with a focus on digitally based improvements and they look likely to be among the industry winners.

Content management systems can guide firms to create the right content and keep it controlled, ensuring it meets regulatory guidelines.

The 43% of firms that have adopted content management systems are positioned to better identify leads for their business development teams and retain existing client’s attention which, ultimately, fuels greater competitive success.

90% of CEOs in asset management not prioritising digital innovation

90% of CEOs in asset management not prioritising digital innovation

Only 10% of CEOs in asset and wealth management say they will be prioritising digital and technological capabilities this year*. While other sectors in financial services are adopting new technologies, asset managers’ efforts remain modest.

There is huge potential for firms to innovate through the front office, the back office and in corporate functions such as finance. There are a few firms with a focus on digitally based productivity improvements and they look likely to be among the industry winners.

Investit believes that CFOs will play a major role in championing innovation. They are acutely aware of the sustained downward pressure on fees. CFOs will be driving the search for tools to improve productivity and profitability. Already we see more CFOs, CTOs and COOs using benchmarking and data analytics as they search for the key indicators they need to manage.

The Investit Intelligence CFOs’ Forum will be exploring the finance team’s role in delivering a strategic vision and the best way to inform the business.

 

* PWC CEO Survey 2017