Archer Insights

New Growth for Established Investment Firms

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Show, not tell: the secret to sustained SMA growth

Retail asset management is enjoying a healthy revival. According to MMI Institute, retail SMAs are growing at an annualized 27.6%. TRowe, Columbia Threadneedle, Janney Capital Management, and Deutsche Bank, among others, are expanding their retail product lines or entering the retail SMA space while veteran players, such as Legg Mason, are continuing to experience robust growth.

Driven in part by investor demand and the winds of regulatory change, managers have been adding new fee-based products built for SMA style distribution, leveraging their investment expertise and gaining exposure to new markets. One example of this is growth in the retail channel through model distribution opportunities. Sponsor platforms have been increasingly focused on seeking niche strategies to complement their offerings – strategies that often come from the front offices of institutional firms.

For institutional and boutique asset managers, the retail channel can be an attractive source of revenue diversification and AUM growth. But the single-channel technology and operations support prominent among these firms do not scale for volume. Consider that a growing SMA manager could open and invest 100 new accounts per month across 30 or more sponsor programs. With the required due diligence, trade authorizations, KYC, restriction establishment, and welcome packages/ADVs that may be required, achieving “scale with sneakers” – the traditional method of working new accounts across several checkpoints within a firm by relying on people – is not a sustainable operating model. Another consideration is related to trading. An SMA manager could easily generate upward of 200,000 trades per month to be applied across thousands of individual accounts.

The temptation in these cases is to pursue the retail channel by adding new volume-capable systems and services. But the “add more” strategy can distract an existing team and disrupt the operation. And maintaining separate systems and channel expertise only adds to infrastructure expense.

A better choice may be to outsource support for the retail piece entirely, preserving resources to focus on the investment decision-making process. There are several systems and outsourced-services providers available to help, but consideration should be given to their ability to integrate with existing business and infrastructure. The need to deliver firmwide portfolio views for proper governance and oversight is one example of why this is important. As such, even with outsourced retail support, a segregated business model is just a transitional step. Over time and with success across multiple business lines, a single technology platform with rightsourced operations will do more to help a manager achieve growth across channels while benefitting from a focus on investment decisions rather than operations.

As with any industry, services and platforms supporting the asset management industry are subject to change, with some consolidation taking place only recently. Yet, regardless of company ownership, the components housed under one brand are often cobbled together and lack full integration. From an end-user perspective, multiple logins to separate systems may still be required to complete a transaction from idea, through execution to settlement, accounting, performance measurement, and reporting.

As a long-time veteran of the asset management servicing business, I can say with full confidence that the words “show me” are more important now than ever before. Any service provider being considered to help you efficiently accelerate your growth should be posed with the challenge to prove their single-solution claims. Single sign-on? Show me. Intuitive interface? Show me. Complex trades allocated across thousands of accounts and sleeves in minutes? Show me. All accounts reconciled daily before the U.S. market opens? Show me. Multi-currency, fixed-income and equity securities in a unified portfolio view? Show me. Visibility into security exposure across all business lines? Show me.

There’s a lot to consider when developing a multi-channel infrastructure for your firm. To find the right growth partner, focus on “show me.” Because each demonstrated capability will help you ensure the long-term health of your growth strategy.

Emil Polito
Emil Polito

Emil Polito serves as Chairman of Archer's Advisory Board. His extensive industry experience is invaluable to the firm's executive management team.

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