Download - What’s Next for Retail Asset Management?
What’s Next for Retail Asset Management?
Barry Feldman IMCI
Northfield Information Services 28th Annual Research Conference
Lowes Don Cesar Hotel St. Petersburg, Florida
October 31, 2015
1. Retail Asset Management today
• What do we know investors want but is very hard to deliver? • PERFORMANCE from manager alpha, hedge funds or smart beta
• What else do we think investors want? • Tax efficiency if it’s easy and cheap • Social investing if it’s easy, cheap and safe enough
• Who gets it? • HNW investors in proportion to their height
• How do they get it? • Family offices • RIAs • SMAs and manufactured portfolios (DiBartolomeo 2008) • Roboadvice? – well a little rebalancing alpha
Retail product differentiation
• Huge numbers of products • 8,000 U.S.-based mutual funds • 10,000 hedge funds globally • 1,400 ETFs
• Effective variety much smaller • Most products target U.S. and developed large cap • Tax-efficient and social investing variety is very small • Style and smart beta variety is restricted to principal regions
• SMAs offer high-end retail the potential of meaningful customization • But more often than not potential is not realized
Stalemate?
• Retail asset management seems to offer more than investors want • Investors are of often thought of as
• Cynical about markets • Distrustful of asset managers • Not investing enough • Chasing returns • Reluctant to embrace new products
• Percentage of households owning mutual funds has plateaued • Grew 8X over the 1980s and 1990s • Average of 45% ownership post-2000 • About 43% as of mid-2014
• Portfolio manufacturing remains a niche SMA product
• Is mismatch between investor needs and industry products a problem? • Are we approaching paradigm exhaustion?
2. Mass Production and Mass Customization
Mass customization: What is it?
• Mike Piore and Chuck Sabel, The Second Industrial Divide – 1986 • Potential of flexible specialization
• Stan Davis, Future Perfect – 1987 • Bespoke products produced with scale technology and cost
• Joe Pine, Mass Customization – 1993 • Historical perspective
• Joe Pine and James Gilmore, The Experience Economy – 1999, 2011 • Experiential dimension
• Anthony Flynn, Custom Nation – 2011 • Value of the consumer design experience
Mass Customization – a timeline
• Subway and Burger King – 1970s • FedEx – 1973 • Dell Computer – 1984 • Volkswagen – 1990s • Zara (2001) vs Gap • Zazzle – 2005
Sizzle in Zazzle
• Customized design mass market • No product made until ordered • Shipped within 24 hrs. • $250 Million in revenue last year • 25% p.a. sales growth • 45% gross margin
http://www.cnbc.com/2015/07/29/the-anti-amazon-thats-making-money-zazzle.html
Retail asset management innovation in perspective
• Most retail investment innovation has been about scale • Alpha/beta separation can be seen as the latest scale story • SMAs and firms like Folio and Motif are about custom investing • Betterment, Wealthfront and Schwab Robo-advice
• Portfolio mass customization
• Parts of an emerging trend? • Mass customization could be the next big frontier
3. The Shock of Technological Revolutions
Social change driven by technological change
• Perez provides a convincing synthesis and renovation of Kondratiev and Schumpeter with a detailed recurring structure • Changes cluster and follow “irruptions” of new “techno-economic” paradigms • Frictions generated by the slow pace of social and institutional adaptation are the
fundamental drivers of the disequilibria that punctuate economic growth • The roles of financial capital change predictably over the course of a cycle • Leading and lagging sectors
• Perez potential implications • Varying investment strategies over the techno-economic cycle • Similar analytical framework for industry-level technological change • Is retail asset management today a lagging sector in the ongoing IT revolution?
• Toffler and Rushkoff address the growing experiential stress of change • “One damn thing after another,” ever faster and more fragmenting • Toffler is basically sociological in orientation, Rushkoff phenomenological
4. Culture Wars and The Conquest of Cool
The interplay of technological and social revolutions • Radio and TV-centered popular culture exploded in the 50s and 60s
• The portable transistor radio the first personal media device • Radio itself
• Was a leading edge of desegregation in the late 40s and the 1950s • Did much to unleashed both the cultural forces of the 60s and their backlash
• Advertising appealed to youth and countercultural themes • e.g. “Pepsi Generation”, “Uncola”, and Volvo and VW anti-style campaigns • Catalyzed mass culture “cool” and “hip” versus “square”
• Firms like Apple aligned culturally to popularize their products • The IT industry followed to a surprising extent
POLARIZATION
https://www.youtube.com/watch?v=6JHzkaHS36g
REVOLUTION
https://www.youtube.com/watch?v=2zfqw8nhUwA
REVOLUTIONARY IN A DIFFERENT WAY
https://www.youtube.com/watch?v=2B-XwPjn9YY
The power in cultural connection
http://www.forbes.com/sites/jacquelynsmith/2012/01/30/experts-and-viewers-agree-apples-1984-is-the-best-super-bowl-ad-of-all-time/
The power of a romantic idea
http://www.c2montreal.com/post/game-changing-super-bowl-ad-defined-creative-marketing/
5. The challenge of investing in the future
• KPMG’s four “megatrend” drivers of the retail asset management industry • Demography – young and global • Technology – social media • Environment – particularly climate • Social investing – of all kinds
• KPMG’s warning • Potential for disruption
• Amazon, Apple, Facebook or Google?
https://www.kpmg.com/SG/en/IssuesAndInsights/ArticlesPublications/Documents/Advisory-FS-Investing-in-the-future.pdf
Socially driven investing • Surveys repeatedly show strong interest
• Particularly among the young • But the big wave never seems to arrive
• Mastering social investing variety and the underlying cultural forces has been difficult for the industry • Involves narrowing the investment opportunity set • Industry resistance from financial theory, political and social sensibilities • Proliferation of social investing preferences is seen a problem not an opportunity
• Climate and other environmental issues growing social issue • Direct investment implications • South African divestment experience of the 1980s
• Case study for understanding the potential of impact climate concerns
Divestment and climate social movements March
1980s Divestment campaign 2014 Peoples’ Climate March
http://indiancountrytodaymedianetwork.com/2015/01/06/extinctions- melting-ice-10-environmental-issues-well-see-more-2015-158566
http://www.thecrimson.com/article/2003/6/4/out-of-africa-on-a-cool/
Investment Mass Customization • Empower retail investors to easily and prudently customize the
investment dimensions that matter to them • Tax advantages could be considerable • Social investing options could offer savers a new sense of engagement
with their investments and provide satisfaction and meaning beyond performance itself • Reduces the fiduciary burden on the investment manager in contending with
the diversity of social investing convictions
• Demand for investment strategy customization could grow over time
Thank you! Barry Feldman [email protected]