Craig Hawley, leader of Nationwide’s advisory solutions business, argues that advisors can use technologies such as AI to gain insights into client behaviors and create personalized solutions and experiences.
But the technology comes with a cost, which means size is becoming more important to advisors as well, Hawley said. Thus, bigger firms should continue to get larger in 2018 as they absorb their smaller competition.
PwC’s Holly disagrees with that assessment.
“I think we all thought, 12 to 18 months ago, that consolidation was going to run through the entire industry, but it hasn’t quite played out that way,” Holly said. “As costs continue to come down on some products, and the ability of technology and output solutions expands across the asset management and wealth management industries, the opportunities for smaller firms to survive [increase]. It’s a very exciting time.”
To better focus on client engagement, Hyman said that advisors should consider outsourcing more of their functions to partners. This may include using technological solutions for middle and back office functions or partnering with a third-party investment manager. Hyman stresses that advisors should complete thorough due diligence on any third-party partners.
The consultants were split on 2018’s investing trends, with Holly believing that investors and advisors will renew their interest in active strategies should the market experience a correction.
“There’s certainly an attraction towards passive vehicles, but the counterargument would be whether active is better prepared for market corrections,” said Holly. “Managers and advisors are beginning to recognize that the future looks like a balance between the active and passive offerings to the client.”
Some investors will find a preference for active management in certain areas, like ESG or real estate investing, guessed Holly.
At Nationwide, Hawley believes that passive funds and ETFs will continue to dominate active funds. Smaller fund sponsors will be pressured into creating lower cost, simple, transparent products.
ESG investing should continue to gain adherents in 2018, said Hyman. Mercer believes that many investment analysts believe that ESG investing will produce more alpha over time, while many investors have warmed to the idea that their savings should also have a positive impact on the world around them.