‘Disruptor’ asset managers set to drive growth

The level of assets run by independent managers has risen sharply as investors shun banks in the hunt for expertise, experts say.

According to the latest Investment Association annual survey, the proportion of assets managed by independent managers in the UK has more than doubled over the past decade. These firms now manage 41 per cent of industry assets.

Assets at independent managers have risen from 15 per cent of industry assets in 2003 and from 37 per cent in 2013. 

In contrast the proportion of assets run by insurers was 27 per cent in 2014, with other financial firms such as custodian banks running 16 per cent.

Fulcrum Asset Management partner Jeremy Bedford says the reason for the growing number of independent asset managers is “people want expertise that is untied to big institutions.”

Fulcrum has recently entered the asset management space after been focusing on the institutional and ultra -high-net-worth space.

Bedford says: “The first thing we need to do is hire the people and then connect with advisers. The changes in the adviser market mean the role of the influencers has changed as a result of RDR, which means we can more easily access the market.

“There has been consolidation, so before there were lots of small firms and we needed a lot of people to cover the fragmented advice market, but now there is a more centralised research and information approach.”

Alpha Financial Markets Consulting head of CRM and distribution technology Mike Smith  says independent asset management firms and boutiques have an opportunity “to do things differently”.

Smith cites Woodford Investment Management as a “refreshing” and disruptive model focusing on transparency.

He says: “Woodford is a transparency disruptor. The firm decided to publish all their holdings while others have been reticent in disclosing all the holdings they have.”

Smith also says independent asset managers are better positioned in the changing environment we are seeing in the industry.

He says: “These firms are able to be more flexible to decide on their strategy or infrastructure development. They can react better to market changes and can reinforce their brand awareness because they are known better for what they do.

“Independent asset managers are more agile and go after opportunities to grab assets and focus on products.”

Experts say independent asset managers can also create their own agenda and decide on outsourcing their operations, for example, without depending on the company they are owned by.

Thameside Financial Planning director Tom Kean says he looks for “basics” when choosing an investment firm with a combination of good old fashioned and sector specific firms.

He says: “These firms are an easily understood answer in the industry. When we look at fund performance it is the specialist fund houses that do better. They focus on products and have a simple model. Banks will continue to struggle with their tarnished reputation and high product charges.” 

Moody senior analyst Soo Shin-Kobberstad argues following the financial crisis, banks have left a gap for independent asset management firms to fill.

She says: “Post-crisis, banks competed less aggressively in asset management with some retrenching, which left a gap for asset managers to develop and acquire more assets. But in future banks might renew their efforts to expand their asset management capabilities.”

But Smith says: “We’ll see independent asset management firms better placed for the future. They don’t have to deal with conflict of interest and will be able to move further. Banks’ speed of change is lower especially because they are IT heavy.” 

The number of independent asset managers is growing, with Aberdeen and Schroders among the list of the 10 largest firms in the UK with £243bn and £187bn in UK AUM respectively. Yet the number of investment boutiques dropped to 34 due to recent merger activity, with total assets growing at just 6 per cent.

As consolidation ramps up for boutiques, banks might still have a chance to regain traction in the industry.

Smith adds: “By being a bank you can get a wider service proposition including wealth and asset management so they can have more opportunities. Also, insurers like Aviva or Aegon have a large direct-to-consumer client base which they can leverage especially around clients’ data as well as banks with their multi-channels.”