The advisory business is moving quickly these days with mergers and acquisitions, new technology and growth of assets under management. In a new white paper, Morningstar and Mercer outlined five 2020 trends wealth management firms and family offices can’t miss to make sure they differentiate themselves from the competition.
Here are the Financial Intermediary Trends for 2020 :
1. Work toward strong governance.
As duties are separated between relationship management and investment oversight, it’s “critical [firms] maintain a strong link between investment decision-making and client objectives,” the paper states. Therefore, to support strong governance, firms need to:
- Invest in talent to bring strength to building portfolios
- Establish robust processes so investment decisions are made efficiently and accurately
- Implement systematic oversight
- Consider delegated solutions, which allows to better service clients and keep up with the complex investing environment
2. Adopt environmental, social and governance measures.
As more clients demand these type of products in their portfolios, advisors need to be prepared by identifying companies that manage their ESG risk and construct portfolios accordingly. In addition, advisors need to approach this area by:
- Having a broader approach and commitment to ESG
- Have ESG-specific resources and analytical tools
- Work on the portfolio team’s ESG data analysis and research processes
- Make sure the team understands its voting and engagement responsibilities
3. Outsource research and compliance teams.
To meet fiduciary obligations, it might be best for advisors to move duties to outside experts, especially for compliance. Time also might be better used if internal research is outsourced. Third-party platforms are one way to free up staff time.
4. Shift to institutional investing and alternatives.
This is perhaps an especially good option now as advisors are increasingly using model portfolios. Also, the paper notes that institutional-level strategies and manager research can aid advisors in evaluating managers that aren’t available at a retail level, which can increase the quality of investment options.
5. Seek differentiated data and cost efficiency.
Advisors will need to squeeze out more from their data-service providers. And the “ability to secure a single data vendor can help drive cost-efficiency and an internal alignment in analysis and marketing functions,” the paper states. Data should be accessible, comprehensive and illuminating.
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