As wealth managers adopt more non-traditional investment products, such as active ETFs and liquid funds for alternative assets, they are looking to get more support and offerings from the asset management industry. Yet many asset managers might not be keeping pace with those needs, according to a newly released survey from the Money Management Institute and Broadridge Financial Solutions, a technology company that focuses on financial services.
The survey found that 89% of wealth managers expect to see increased allocations to active ETFs and alternative investments. The majority of asset managers agree with them, including 92% who foresee increased allocations to active ETFs and 85% who foresee increased allocations to alternative assets. Yet a gap still exists between the interest expressed in these investment options by wealth managers and what many asset managers have in the pipeline.
While a number of asset managers have taken the lead in offering non-traditional investment products, “It’s the second round that is more hesitant to come in for a couple of reasons,” said Craig Pfeiffer, president and CEO of the Money Management Institute. “There is a pretty high upfront cost, not necessarily dollars, but an upfront cost to go into this space. The first part is building out the distribution. The second part is creating competency in your organization and in your distribution, and you’ll see in the research that it makes reference to specialists. You’ll see a lot of conversation distributions, sales teams, competency and capabilities. This is a similar but very different space than traditional markets. And so I think that’s caused people to be more thoughtful about going in.”
MMI and Broadridge found that 74% of the wealth managers they surveyed want asset managers to make a greater investment in product specialists for non-traditional vehicles, up from 38% who expressed that sentiment in 2023. Six out of 10 surveyed asset managers planned to follow those calls, with the greatest emphasis being put on alternatives, private markets investments and other non-traditional products.
For example, the survey showed that 89% of wealth managers plan to launch, add or expand direct/custom indexing products for their clients. However, 49% of asset managers indicated they are not actively involved with direct/custom indexing, and 60% of those who do not currently offer these types of products have no plans to introduce them.
Another 51% of wealth managers expressed interest in asset managers converting existing active mutual funds into active ETFs. Only 35% of surveyed asset managers said they are planning such conversions.
Liquid fund vehicles for investment in alternatives were another popular option among wealth managers, with 78% identifying them among the three top fund wrappers for growth potential. Yet only 49% of asset managers indicated they are offering or developing liquid funds for alternative investments.
“When we looked at some of the product structures that were really resonating with asset managers in terms of where they are developing vs. wealth managers in terms of their preferred wrappers, we found a bit of a disconnect there,” said Tim Kresl, principal of distribution insight at Broadridge. “Both were very focused on the continued growth of registered funds—interval funds, tender offer funds, what have you. But we looked at the wealth management community, and right below registered funds, there was a lot of interest in liquid funds on the alternative side. ‘How can I maximize liquidity, but still get access to some of these by their nature non-liquid investment opportunities?’ Because what they are hearing from their clients is that no matter how much money they have, some liquidity is still very important. Whereas asset managers were a little bit more focused on the private fund space.”
The majority of wealth managers (83%) also indicated they would like to approach non-traditional products such as active ETFs and alternative investments as integrated parts of their overall portfolio, not as standalone investments. Only 65% of asset managers shared that vision.
The survey, which interviewed 175 MMI members, was conducted in May and June of this year by MMI and Broadridge in conjunction with independent market research firm 8 Acre Perspective. The respondents included 99 asset management professionals, largely in distribution and distribution management roles, 36 wealth management professionals and 40 professionals from technology and solutions provider firms. Approximately 35% of the asset management respondents were from firms with $1 trillion or more in AUM.
