U.S. retail assets are close to overtaking institutional assets, and open-ended mutual funds still are the king of investment vehicles, but collective investment trusts are growing more popular as a low-cost, more flexible alternative to mutual funds, according to new research from Ceruilli Associates.
Overall, the report shows the amount of professionally managed assets in the U.S. is $46 trillion, a 15% increase over the previous year. Those assets are closely split between retail (47.8%) and institutional (52.2%), and the data shows a growing shift to retail from institutional. In 2007, the amount of assets was closer to 60% institutional versus 40% retail, Brendan Powers, senior analyst and lead author of the report, told ThinkAdvisor. The study also found retail client assets having a 19.6% year-over-year growth versus 10.9% for institutional client assets.
“Part of the growth of retail is chunks of assets are moving from traditionally institutional client channels to retail client channels,” he said. “the best example is an IRA rollover, moving out of [defined contribution] or pension plans, to be managed by an advisor.”
Most of this is due to the aging demographics of the United States, he explained. “The baby boomers are retiring and taking distributions from employee-sponsored retired accounts and rolling them into IRAs or to RIAs,” he said.
Another part of the growth has been the continued bull run in the stock market, which more retail is exposed to while institutional channels have placed more in fixed income products, he noted.
Powers also highlighted that the pre-eminent investment vehicle is open-end mutual funds, which have 31.6% of market share, up slightly over 2016, and boosting $14.7 trillion in assets through 2017.
“Advisors in the retail channel still use mutual funds for active exposure,” Powers said, while on the institutional side, particularly defined contribution funds, half of the assets are in mutual funds.
“One trend we see is the industry is taking a more vehicle-agnostic approach to product,” Powers said. “Asset managers from the supply side are working to build out vehicle offerings, to offer more than just mutual funds, for the client to choose which wrapper to use for which strategy.”
Although the “biggest beneficiaries” are ETFs on the retail side and separate managed accounts on institutional side, Powers says CITs, which now have $3 trillion in assets at end of 2017, an 8.5% growth year over year, are growing more popular. These products are not governed by the Investment Company Act of 1940 nor need to be registered with the Securities and Exchange Commission. Instead they are regulated by the Office of the Comptroller of the Currency. They are largely designed for 401(k) plans and are tailored to match the plan strategy, as well are usually lower cost than mutual funds.
Other findings of the study:
- Retail variable annuity sales have shrunk. Gross sales fell to $77.1 billion, while net sales slipped once again into negative territory, ($54.5 billion). Fixed annuity assets have expanded at a 10-year compound annual growth rate of 5.9%.
- Wirehouses remain the largest retail channel, with $7.2 trillion in assets. Just behind them are retail direct investor platform channels with $6.9 trillion. However, “stripping out double-counting and non-addressable assets, both wirehouse and retail direct platform channel assets total $4.5 triliion,” according to the report.
- The independent RIA channel had the largest year-over-year growth of 20.4%, with just less than $3 trillion in assets.
- Financial advisor headcount rose to 311,305, with the largest percent increase of 4.8% in the independent RIA group, while retail bank broker-dealer group grew at 2.7% and national and regional BDs at 2.1%.
- Wirehouse advisors accounted for just 15% of all advisors by headcount but control 35.4% of all advisor assets.
- Total high-net-worth client assets were $8.4 trillion in 2016. Private bank and bank trusts managing these funds are losing share, managing 34% of those assets.
- Regarding institutional assets, 401(k)s, at about $5.5 trillion, grew 16% between 2016 and 2017.
- IRA assets also grew past $9 trillion in 2017, up 13.9% over 2016.
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