1) Expect More Usage of Managed Accounts
Planadviser | 2/1/2021
Because… A higher level of interest in managed accounts amid COVID-19 should be great news for providers as the adoption of managed accounts has been much lower compared to target-date funds. According to Vanguard’s How America Saves 2020, 63% of plan participants were offered managed account programs, but only 5% used one. In comparison, 54% of participants used a target-date fund. For those that had access to target-date funds, 80% embraced them. Some plan participants stay away from managed accounts because of higher fees, which could range from 0.40% to 0.60% on top of underlying fund expenses and plan administration costs. Managed account providers need to encourage plan participants to see the value of using the managed account service. They should prove that individual investors who lack the time, knowledge, or confidence can indeed benefit from the professional guidance. In addition, managed account providers have to demonstrate the personalized asset allocation based on participants’ actual financial situations is worth the additional fees charged.
2) Some Professional Investors Think ESG Is a Bubble — But Two-Thirds Say It’s the Future
Institutional Investor | 2/3/2021
Because… Just like institutional buyers, retail investors are also divided in their opinions on ESG strategies. While the interest in ESG-focused funds has risen considerably, there are concerns as well. We have recently seen asset management firms expand their ESG focus into different investment markets and vehicles, such as bond markets (AB Sustainable Thematic Credit Portfolio and IQ MacKay ESG Core Plus Bond ETF), emerging markets (Northern Trust Climate Aware Emerging Market Index Strategy and Ashmore Emerging Markets Corporate Income ESG Fund), SMA (PGIM Quant Select, a platform that offers RIAs customized ESG), and model portfolios (Merrill Lynch Investment Advisory Program). We think simply offering access to ESG products is not enough. An in-depth investor education program would be more valuable. If fund providers can shed light on how the ESG approach helps their product respond to market shocks and how improved cybersecurity measures can protect remote employees and customers of publicly traded firms during the Coronavirus outbreak, investors will have more confidence in the ESG philosophy.
Business Wire | 2/3/2021
Because… For asset managers seeking to strengthen investment capabilities, a team lift-out can be a more viable approach than building a team from scratch or acquiring the entire firm. The team lift-out has several advantages. First, team members have established a long-standing relationship before they move to the new employer. They do not need time to adjust to one another in a new environment when they already have mutual trust and chemistry among themselves. Second, it would be easier for investors to evaluate the team’s previous track record. Third, it makes economic sense for an acquiring firm as it does not have to pay a large amount of money for the whole company. However, asset management firms need to ensure that a team life-out is executed in the most thoughtful way. Legal issues could arise in terms of confidentiality agreements, portability of the team’s performance record, restrictions on client development, and potential contract breaches when a cultural misfit is sensed.