The Institute for Innovation Development interview series seeks to learn from innovative business leaders, uncover innovation best practices and discover how to apply these insights in the financial services industry.
We recently sat down with Dan Sondhelm, CEO of Sondhelm Partners—a firm designed to help financial companies attract investors, strengthen distribution and build brands. We asked Dan, a nationally recognized financial services communications expert and business consultant, for his real-world perspective on the major challenges and trends in the financial services industry.
Hortz: In working with a wide range of industry clients, from small boutique fund firms to large asset managers and from wealth management firms to industry service providers, are there common challenges they face in today’s business environment?
Sondhelm: There is definitely overlap in the challenges facing advisors and asset managers of every size. While there are common themes, it depends on the individual asset manager and wealth manager as to which is the greatest challenge. Differentiating oneself in a crowded marketplace, competition, fee compression, increased regulatory scrutiny, recruitment and shifting demographics are broad-based issues driving change across this industry.
Hortz: What are the major trends you see shaping up in the mutual fund industry?
Sondhelm: The industry has entered a distribution phase as the boomers begin retiring at record numbers. For many of them, mutual funds were a favorite investment, but now they need that money, and new money is not finding its way into mutual funds the way it once did.
Other trends are a greater focus on fees and transparency and the rise in passive investing. The growth of passive investing and the proliferation of exchange-traded funds, each of which has very low costs, have naturally attracted investors while forcing many mutual fund providers to lower their fees. Simultaneously, compliance continues taking a greater share of many firms’ budgets.
As a result, scale is becoming important in order to compete, so smaller firms may seek strategic partnerships or to be outright acquired and absorbed into a larger entity that can provide the services they need to survive.
Hortz: Should we expect merger and acquisition activity to increase?
Sondhelm: Consolidation is becoming a topic in more conversations. We have seen more firms express interest in finding a strategic partner. Both 2015 and 2016 were robust M&A years. Some of the more notable deals included the merger of Henderson Group and Janus Capital Group, and the Ares Capital acquisition of American Capital. Most recently, Raymond James Financial Inc. agreed to buy Scout Investments and its Reams Asset Management division from UMB Financial Corp. In 2016, there were 149 asset manager transactions announced globally, 148 in 2015 and 135 in 2014, according to Sandler O’Neill. Midsized managers with specialist capabilities were the most targeted.