Key Insights
SEI Knowledge Partnership
2013 Executive Conference
March 10–13 | The Royal Palms Resort | Phoenix, Arizona
Key Insights / SEI Knowledge Partnership / 2013 SEI Executive Conference
The SEI Knowledge Partnership would like to thank
all of the speakers who were an integral part of our
2013 SEI Executive Conference and without whom
the conference could not have taken place.
The data and research referenced in this Key Insights summary are credited to these
speakers and the SEI Knowledge Partnership team, with particular thanks to Ross Ellis
and David Mumford. Similarly, a well-deserved “thank you” to the SEI Events team of
Shelly Tsipori, Casey Angle, Stacey Degon and Debbie Lipsky—it was their talent and
advanced planning that pulled the event off without a hitch and garner nothing but
compliments.
The engaging keynote presentation was given by: Platon Antoniou
The speaker participants, in order of presentation, were:
Brian Olsen, Art in Action
Jessen Fahey, Columbia Management
Milton Ezrati, Lord Abbett and Co.
Karrie McMillan, Investment Company
Institute
Jeb Doggett, Casey, Quirk & Associates
Steven Drobny, Drobny Global Asset
Management
Sean Bill, City of San Jose Police and Fire
Department Retirement Plan
Lawrence Powell, Utah State Retirement
Fund
M. Cullen Thompson, Bienville Capital
Management
Christopher Chabris, Union College and
co-author of The Invisible Gorilla: How Our
Intuitions Deceive Us
Chris J. Brown, Hearts & Wallets/SWAY
Research
Kelly Cliff, Callan Associates Inc.
Benjamin Allensworth, Managed Funds
Association
Adam Donoghue, Maples and Calder
Justin S. Guthrie, ACA Beacon Verification
Services
Robert Mirsky, KPMG
Joseph K. Morant, Navigant
Dennis Bowden, Strategic Insight
Douglas D. Hanson, Charles Schwab &
Co., Inc.
Frank McAleer, Janney Montgomery Scott
LLC
John Brenkus, Host of ESPN’s Sport
Science & Director of BASE Productions
(on opposite page and outside cover) West Collection Artist Devorah Sperber, After Vermeer 2 (edition 1/3),
2006, 5,024 spools of thread. westcollection.org
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Key Insights / SEI Knowledge Partnership / 2013 SEI Executive Conference
“An Artful Approach. A Clear Perspective.”
What in the world does that mean? Is it just marketing nonsense or is there a
deeper meaning? The theme we selected for the 10th annual SEI Executive
Conference, relevant to all investment managers—traditional and alternative
alike—refers to the idea that both artistic and scientific approaches may be
needed to succeed long-term in the investment management industry.
In discussions with clients, their investors, our industry partners and others, we are reminded that
performance remains crucial and numbers are important. But while there is a science behind money
management, there are ways to look at things differently and ways to be seen in a different light. Numbersoriented gatekeepers and intermediaries are increasingly relevant, yet it is often the story behind the figures
that tips the balance and causes an investment allocation. Particularly in this environment of low interest
rates, equity market volatility and heightened risk concerns, there is so much more needed to increase
differentiation, raise assets and be successful in the ultra-competitive investment management market than
just generating numbers.
We believe there is an art to marketing, an art to communicating your message and an art to showing what
you stand for, and why you are better (or different) than the competition. In order to help our investment
manager clients better understand the different approaches to successfully navigating the changing
investor, regulatory and operational landscapes within the investment management industry, SEI gathered
premier industry executives, professionals and researchers at our 10th annual SEI Executive Conference.
The key insights and guidance from the conference are highlighted in the following pages. For previous
conference summaries, as well as for information about research documents, white papers, and trends
affecting the investments industry, please visit the Knowledge Partnership section of the SEI website at
www.seic.com/ims or contact your SEI Relationship Manager.
Key Topics Examined
›› State of the Industry: Investment Perspectives
in an Uncertain Environment
›› Key Insights on How to Build, Maintain and
Support a DCIO Business
›› Profit Margins at Risk: Firm Value Propositions
and Success Factors Needed
›› The Evolving Global Regulatory Landscape:
Form PF, AIFMD, CFTC and more
›› The Evolving Investment Landscape: Real Money
1.0 through 4.0
›› Key Operational Risks: What to Watch For
and How to Avoid Them
›› Key Insights from Institutional Investors: What
Managers Need to Know and Do
›› Trends in Distribution: New Products, Marketing
Tips, Investment Opportunities
›› Attention Blindness: Sometimes Too Much Focus
Leads to Bad Decisions
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Key Insights / SEI Knowledge Partnership / 2013 SEI Executive Conference
Investment Perspectives in an Uncertain Environment
Milton Ezrati, Lord Abbett and Co.
Is the recovery real? From his vantage point as senior economist and chief strategist for a $129
billion traditional asset management firm, our speaker weighed the positives and negatives.
The U.S. economy is weak, but not
pre-recessionary. We can expect a long, slow
slog with modest growth. The housing market is
stabilizing, the corporate world is flush with cash,
and consumers, whose spending accounts for
70% of the economy, have greatly improved their
household balance sheets.
There are reasons to be bullish on domestic risk
assets despite the lack of specific good news.
The markets are discounting prices with the
expectations of “something ugly”—fears that are
legitimate, but have been overplayed by the media.
In this climate, even mediocre news can lift the
market. The sequester equates to about 1.4% of the
budget, which is not going to rock the economy.
What we’ll get from Washington is “a muddle,” not
our worst fears.
Stocks are cheap relative to corporate bonds. Not
since the 1950s have stocks been priced at such
relatively low levels. Back then, no one saw it as a
time of great opportunity; there was a sense that we
were about to relapse into depression. Like now,
the market was priced for disaster.
Investors in “risk-off” assets know they are losing
money on them, but are willing to pay an “insurance
premium.” The easy money in junk bonds has
already been made, but they too are “priced for
fear.”
The European situation won’t improve, but the
market’s fears that the euro will be dissolved and
sovereign debt rescheduled are unlikely to be
realized. Europe has shown political will, which
should not be underestimated, and both the
German industry and the European Central Bank
want to keep the euro.
Our economic prospects aren’t exactly rosy, but are
probably better than we think.
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Key Insights / SEI Knowledge Partnership / 2013 SEI Executive Conference
Profit Margins at Risk
Jeb Doggett, Casey, Quirk & Associates
Casey Quirk’s recent study, The Complete Firm 2013: Competing for the 21st Century Investor,
depicts a challenging and shifting competitive environment—one in which success will be driven
by very different factors than those that mattered most a decade ago.
Slower revenue growth
A concentrating industry
Net new flows are still flat compared to 20052007. That means the value of existing clients
is much higher than in the past. Retirement plan
assets are growing slowly as Baby Boomers move
into decumulation. Intermediaries are becoming
institutionalized and squeezing managers on
fees. Emerging market populations will drive new
flows into the industry; the industry will need to be
responsive in its product development. In traditional
asset classes it’s a takeaway game.
A few winners will attract 90% of the revenue
growth in the next five years—a big gain in share
from the 45% they captured in 2011. Growth will also
be increasingly concentrated in successful value
propositions.
Bright spots include alternatives and solutionoriented products. The rising demand for
alternatives, which command higher fees, will be
driven more by individual investors than institutions.
Solution-oriented opportunities include multi-asset
products, liability-driven investing, target-date
retirement funds, and outsourced CIOs.
Individual-led markets will drive most revenue—an
estimated 81% of new global net revenues from
2012 to 2017.
Success factors going forward
Growing top-line revenues will be key. Margins will
be driven more by revenues than costs, which are
dominated by compensation. The median operating
margin rebounded to 32% in 2011, the highest point
since 2007.
Brand plays a surprisingly strong role in growth.
When it comes to attracting flows, perceived
performance is as important as actual performance.
Fully global firms (with at least 33% foreign-client
AUM) are separating from the pack, enjoying
higher revenues on net new flows and operating
margins 5% to 8% higher than regional or partly
global firms.
Sales staffing is key, although success depends
more on sales focus and market presence than on
having the most productive sales people.
Asset managers of all types must find ways to differentiate
and adapt their business models to the shifting climate.
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Key Insights / SEI Knowledge Partnership / 2013 SEI Executive Conference
Asset managers of all types must find ways
to differentiate
and
adapt
their business
The Four Value Propositions
Most
What
Characterizes
“The Complete
Likely to Succeed Now
Firm” climate.
Today?
models to the shifting
High-alpha active management—less correlated
strategies with high tracking error
Investment leadership—a well-articulated,
innovative philosophy
Cost-efficient beta—competitively priced index
or ETF products
Well-led and organized sales and marketing—
properly resourced distribution aligned with
market demand
Asset allocation expertise—credible multi-asset
products and services
Solutions-led distributors—differentiated, openarchitecture allocation products and services
Technically-skilled client interface—people who
have strong investment knowledge and support
enduring multi-product relationships
Ability to compete for talent—well-designed
incentive programs
Clear governance and ownership—relative
autonomy with a clear growth strategy and
succession planning
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Key Insights / SEI Knowledge Partnership / 2013 SEI Executive Conference
Real Money 4.0
Steven Drobny, Drobny Global Asset Management
After 2008, pension funds that must have “real money” to meet their liabilities have scrambled
to find new business models and deal with tail risk. But plan sponsors have not fundamentally
changed their approach and are still in search of a viable post-financial-crisis model.
What worked in the past?
Directions for change
Early models relied on traditional asset classes.
In Real Money 1.0, plan sponsors could meet their
liabilities with 100% bonds, and life was easy until
inflation ratcheted up in the ‘70s. Then came Real
Money 2.0 and a shift to 60/40 portfolios in the
early ‘80s. That worked well until the dot-com bust
wiped out a large share of equity asset value.
Adopt a more macro orientation. Investment
committees tend to look backwards when instead
they need to look forward and understand the
forces shaping the investment climate.
Real Money 3.0 was about managing risk. David
Swensen’s success with the Yale Endowment
ushered in a broadly diversified model focused
on equities and equity-like investments, with a
premium for illiquidity risk. By 2008, plan sponsors
were investing in alternatives and were both
explicitly leveraged and implicitly leveraged via
allocations, which were pushed high to allow for
the time it takes to put money to work. Swensen
was the first to recognize the importance of the
illiquidity premiums—Yale had over 100% invested
in equities—but failed to see the importance of
valuations or to anticipate the impacts of crowding
in the alternatives space.
Plan sponsors are at risk. The typical pension fund
has diversified asset allocation, yet 88% of risk is
concentrated in equities. Large investors suffer from
herd behavior, with 90% of all hedge fund flows
going into the same top ten funds. They also face
“the curse of compounding:” to make 7.5% a year
now, investors need the S&P 500 to double and go
beyond 3000 in seven years; they also need high
asset values, high inflation and interest rates.
Set risk-adjusted return targets. Allocations
should be risk-weighted and grouped based on risk
characteristics.
Rethink the value of liquidity and of cash, which
can be used as a source of leverage. While cash
historically has returned zero, it has an embedded
option value that can’t be modeled or priced;
cash also provides the flexibility to weather tough
situations.
Leveraging macro principles
Global macro is the only asset class with
information content. Institutions can utilize their
hedge fund programs to better understand the
macro environment, provide expertise for investing
in themes across asset classes, and assist in risk
management.
Investors will need “interpreters” who can help
them sidestep the risks of “macro-tourism” and
avoid expensive tail-hedging strategies that haven’t
worked.
Until plan sponsors find effective all-weather portfolio
models, we should worry about our “rotten at the core”
pension system.
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Key Insights / SEI Knowledge Partnership / 2013 SEI Executive Conference
Institutional Panel on Real Money 4.0
Moderator: Steven Drobny, Drobny Global Asset Management
Panelists: Sean Bill, City of San Jose Police & Fire Department Retirement Plan; Lawrence Powell, Utah State Retirement Fund;
M. Cullen Thompson, Bienville Capital Management
Talk about “too big to fail!” The funding gaps that would be created by a large-scale failure of
pension funds would dwarf the bank bailout.
Changes the panelists’ institutions
are making
Rethinking portfolio construction: Starting with a
view of the world as a basis for allocations; pursuing
compound returns with lower volatility rather than
“home runs;” de-risking portfolios, making it up on
manager outperformance; making allocations based
on broad themes that are non-correlated and can
be pursued across asset classes; developing “what
if” plans that start with disaster scenarios rather
than return targets; being opportunistic to take
advantage of dislocations.
Shifting structures: Seeking more flexibility
for staff to make tactical changes and select
managers without Board approval; relying (and
spending) more on consultants, thinking of them
as an extension of staff; being more open to
opportunistic ideas.
Focusing on good governance: Studies show
that when more than one-fourth of members are
sponsors or pensioners, it negatively affects Board
dynamics. Canadian pension reforms requiring
that a majority of Board members be independent
should also be investigated.
Altering methods of manager selection: Gravitating
to active managers with product focus, major coinvestment, and high tracking error; independently
sourcing managers before they appear on
consultant lists; seeking low-fee relationships that
help smaller hedge funds to grow; using funds-ofone and negotiating heavily.
What do plan sponsors look for
in managers?
Alignment of interests. Co-investment is extremely
important, as is transparency regarding equity
ownership.
Flexibility on fees, including lower fees for large
allocations, hurdle rates, crystallization of incentive
fees over a year timeframe.
Acceptable structure, especially when it comes
to lockups, liquidity, and the match between assets
and liabilities.
People who are passionate about what they’re
doing, don’t have big egos, and demonstrate
an ability to see and learn from their own mistakes.
Institutional investors need to look beyond “business as
usual” for better ways to operate in a tough environment.
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Key Insights / SEI Knowledge Partnership / 2013 SEI Executive Conference
Attention Blindness
Christopher Chabris, Union College
Within the field of cognitive psychology, many experiments and studies have shown that people
often miss important facts—even those literally right in front of them. One relevant example: surveys
have found most people are surprised when informed that the S&P has gone up 90% in the last
four years (see “A Stock Market Streak That Has Drawn Few Cheers,” New York Times, January 25,
2013). Our speaker is the co-author of The Invisible Gorilla: How Our Intuitions Deceive Us.
Why we miss important facts
How to perceive what we’re missing
Multi-tasking. We’re not as good at it as we think.
We need to focus our awareness, but even then we
have a limited capacity for paying attention. We are
also unaware of our skill deficits. Even in the face of
objective information about how skilled we are, we
think we’re better than that.
Searching for more information. When securitized
mortgages began looking suspicious, very few took
the trouble to go see the actual houses in loan
portfolios.
”Inattentional blindness.” Not only do we miss
things, we don’t know we’re missing them. We are
particularly prone to missing things we don’t expect
to see.
Failing to consider what didn’t happen. For
example, if we say “the stimulus didn’t do anything
to add jobs,” we’re ignoring what might have
happened without it.
Giving confidence too much weight at the expense
of other information. When people project
confidence and authority, we tend to rely on that as
an indicator of ability and trustworthiness (the case
of Bernie Madoff being a prime example).
Imagining what might have produced the
information or pattern before us.
Thinking in an abstract or complex way about the
dynamic at work.
Reflecting on the process and output of our
thinking. What would help take decision-making
to a higher level?
Asking is an obvious strategy, but one that’s often
overlooked. For example, when checking into a
hotel, why don’t we ask if a better room is available
rather than simply assuming we’re being offered
the best choice there is?
Learning to develop our skills of perception
and thought.
With some focus and practice, inattentional blindness can
be overcome. In the meantime, simply knowing we have
these mental foibles can help our decision-making.
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Key Insights / SEI Knowledge Partnership / 2013 SEI Executive Conference
The DCIO Landscape Defined
Chris J. Brown, Hearts & Wallets/SWAY Research
DCIO, or “defined contribution, investment only,” refers to the 401(k) business focused on
providing investment services alone—no recordkeeping is included—and selling one’s investment
product through someone else’s platform. Our speaker’s consulting firm did the industry’s first
study of this market in 2004 and has updated it annually ever since.
What’s the appeal?
Keys to success
A strong, growing market in contrast to the
rapidly dwindling DB market. DCIO plans currently
represent about $5 trillion in AUM, and are
projected to grow to $6.2 trillion by the end of
2017. This translates into annual growth of 5%, a
faster growth rate than predicted for any retirement
product other than IRAs. The DCIO market now
represents about 46% of all DC assets, and is
larger than the proprietary DC market (e.g. firms
such as Fidelity and Vanguard, who do their own
recordkeeping).
Strong hybrid marketing and sales efforts. DCIO
spans the retail and institutional markets, and there
are many bases to cover.
Access to a huge swath of households you might
not reach otherwise. The DCIO market is most
focused on high-net-worth individuals, including
pre-retirees who are likely to reposition their
portfolios.
A steady inflow of new and “sticky” assets through
plan contributions. DCIO is also a good way to prop
up sales in hard times; while 2011 saw redemptions
in many areas, the DCIO’s market share spiked. The
business isn’t easy to win, but it’s also harder to
lose, as platforms tend not to cut managers quickly.
Being product-agnostic. While mutual funds rule
DCIO gross sales and assets, CITs and sub-advisory
products (e.g., on insurance platforms) are growing
in importance. QDIAs—qualified default investment
alternatives, especially target-date funds—are
experiencing particularly rapid gains in share. The
key is providing products in the form plan sponsors
and recordkeepers want them.
Offering appropriate pricing options. Institutional
pricing is coming down market, as advisors replace
commissions with asset-based and flat fees.
Managers are shifting away from R shares and
12b-1 fees, bringing down costs to plan sponsors
and participants. Additionally, 70% of managers
are now offering 0/0 shares that strip out fees to
provide “super-institutional” shares with the lowest
cost possible.
A commitment of resources. Competition is intense,
and the business is heavily concentrated. Nearly
three out of five new DC dollars go to a small group
of preferred managers, with 28% of flows going to
the top three. As a result, between 2007 and 2012,
average DCIO sales and marketing spending more
than doubled to $5.16 million per manager.
DCIO is a major opportunity for those who understand
the market and are willing to commit the resources it
takes to compete.
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Key Insights / SEI Knowledge Partnership / 2013 SEI Executive Conference
DCIO Panel
Moderator: Chris J. Brown, Hearts & Wallets/SWAY Research
Panelists: Kelly S. Cliff, Callan Associates Inc.; Jessen Fahey, Columbia Management
DCIO plans are democratizing investment strategies, providing professionally managed exposure
to asset classes to which the average participant has had no exposure.
What managers need to know
Institutionalization has brought positive
developments. More 401(k) plans are using
consultants; re-enrollment rates are higher than
expected.
The market wants customized and specialized
solutions. It takes the right product to fit plan
requirements. Plan sponsors are being more
discriminating, pushing for products with low or no
minimums and the ability to customize.
Pricing is a sensitive issue. Even 5 bps is discussed,
and plan sponsors with $500 million in assets or
more generally prevail. For the few firms with brand
recognition in this space, DCIO products tend to be
loss leaders.
Strategic brand-building matters. Strong basic
materials and thought leadership are needed to
reach mass audiences.
How to enter the DCIO market
Focus on participants and their experience. Human
resources departments are now getting involved. A
big part of the job is educating participants on their
behaviors—simply saving 10% and investing it in
a target-date fund isn’t enough; successful savers
do more. It is also difficult to benchmark these
strategies and explain their performance. But while
the investment story is becoming more complex,
the experience will be simpler.
Be prepared for stiff competition. Many firms
want to diversify but can’t create all the needed
fund products. Quite a few target-date funds
have closed, realizing they lacked the scale and
sustainability to compete. On the other hand,
alternative strategies are beginning to be more
accepted.
Know the data and the players. Below $100 million
in AUM, there are too many plans and players to
cover the bases; it makes more sense to work
with advisors. Above $100 million, you can find out
players through public data such as 5500 filings
or audit reports.
Push for ways to encourage participation. Too few
participants are getting into plans at the right level—
and those falling through the cracks are the people
who need it most.
Use the right language. Concepts such as
“freedom,” “independence,” and “control” resonate
more with investors than “retirement savings.”
The ultimate DCIO product is a total retirement solution
with advanced diversification, enough participation to
be economical, and a customizable glide path.
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Key Insights / SEI Knowledge Partnership / 2013 SEI Executive Conference
Regulatory Update
Moderator: Phil Masterson, SEI
Panelists: Karrie McMillan, Investment Company Institute (ICI); Benjamin Allensworth, Managed Funds Association (MFA);
Adam Donoghue, Maples and Calder
Our panel provided a download on current hot topics in the ever-shifting regulatory landscape.
Systematic risk regulation
Latest European regulations
Form PF has proved to be more frustrating and time
consuming than expected. Managers have stopped
asking for SEC guidance in fear of last-minute
changes.
What AIFMD means. The Directive aims to
harmonize European regulation and increase
oversight of managers of non-UCITS funds which are
EU-domiciled or marketed to EU investors. AIFMD
and the UCITS Directive are, to some extent, two
sides of the same coin, UCITS being the older and
more established fund sibling. While the UCITS
Directive is a product directive, AIFMD aims to
regulate the alternative investment manager. AIFMD
has brought a battery of new rules with a timeline
stretching out to 2018 that apply to managers of nonUCITS funds such as private equity and hedge funds.
Similar to UCITS regulations, these may not appear
onerous when looked at individually, but when
added up, they become a significant compliance
and documentation burden. The reward for this
compliance burden, again based on the UCITS
regime, is that managers which comply fully will have
a “passport” to market their AIFMD-compliant funds
to professional investors throughout the EU.
Varying metrics. Managers who share data need to
explain why their metrics are different and better
than other investor reports.
Added layers in Europe. AIFMD, the EU’s Alternative
Investment Fund Managers Directive, includes a
reporting template similar in concept to Form PF
but different in form and the types of information
requested. Additionally, every Member State may
add its own interpretation, possibly resulting in
widespread lack of uniformity.
Derivatives reform
A global effort. In 2009, the G20 nations agreed
to more transparency and centralized reporting
for derivatives. Countries around the world are
addressing this, stoking fears that each will come
up with its own regime. The industry is seeking
harmonized rules across jurisdictions.
CFTC registration. As a result of Dodd-Frank,
swaps have become the domain of the Commodity
Futures Trading Commission (CFTC), causing the
CFTC to amend its rules to obtain jurisdiction over
many advisers to registered funds. The ICI sued the
CFTC on its registration requirements and lost. The
case is on appeal with a decision expected by early
autumn. There is no exception for foreign funds that
trade derivatives, even if they are not marketing
to U.S. investors. The status of funds of funds is
unclear, although the CFTC has provided perhaps
six months of temporary relief.
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How to respond. All will depend on the importance
of the EU market to the relevant manager: there is
a sliding scale of compliance, whereby the more
access that a non-EU manager wants to have to EU
investors, the more onerous the compliance burden
will be. For non-EU managers, the status quo of
selling to Europe by private placement (rather than
public offer) should largely remain intact, subject
primarily to some additional reporting/disclosure
requirements. However, the Directive is extremely
convoluted and creates multiple permutations, so
as a first step non-EU managers should assess
the value of the EU as an investor market for their
business and analyze the different options with their
legal advisers. AIFMD will take effect as soon as July
22, 2013, so time is of the essence.
Key Insights / SEI Knowledge Partnership / 2013 SEI Executive Conference
Longer term issues. AIFMD does not apply to
UCITS funds, but the UCITS regime will change
in the coming years to align it more with AIFMD.
There are signals that the scope of the UCITS
product may be reined back, so that UCITS
alternative/hedge fund strategies may in the
future be directed towards the AIFMD regime.
More immediately, certain EU Member States are
considering restricting their private placement
regimes in response to AIFMD, which would in turn
restrict the ability of non-EU managers to access
investors in those markets without a fully AIFMDcompliant product. So, in deciding on a marketing
strategy for EU investors, it remains a case of
“watch this space.”
With regulatory regimes in flux in the U.S. and abroad,
managers need to stay abreast of pending new
requirements as well as emerging issues.
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Key Insights / SEI Knowledge Partnership / 2013 SEI Executive Conference
Operational Risks/Outsourcing
Moderator: Holly H. Miller, SEI
Panelists: Justin S. Guthrie, ACA Beacon Verification Services; Robert Mirsky, KPMG; Joseph K. Morant, Navigant
Our panel reflected on a few of the issues and lessons highlighted in SEI’s recent report,
Top 10 Operational Risks: A Survival Guide for Investment Management Firms.
Combating complacency
Internalizing expectations. Rather than assuming
“it can’t happen here,” think about what might
happen, and what regulators and clients are
expecting from you.
Confusing funds and firms. When it comes to
procedures for functions such as cash transfers,
remember that investment funds are the clients of
asset management firms.
Novices, apprentices & soloists
Back to basics. Active management of controls,
checklists, and metrics in service-level agreements
can help you spot risks in your operating model.
Siloed inputs. Too often, contracts and other
key documents are written by lawyers with no
involvement by operations or other business teams.
Keeping infrastructure up to speed. Many firms
grow assets or increase their complexity without
expanding their systems at the same time.
The blind leading the blind. Trouble is afoot if
senior managers have little understanding of the
operational tasks they are supervising.
Amalgamated assignments
Key person risks. Losing a junior clerk can be
disastrous if that person is the only one who knows
how to perform a necessary function.
Who’s in charge? When lines of authority are unclear,
or people wear multiple hats, it’s a recipe for risk. For
example, trading teams should not be doing trade
settlement functions, and portfolio managers should
not be telling operations how to value securities.
Examples of Simple
Risk-Avoidance
Measures
›› Documenting workflows
›› Cross-training employees
›› A clear path for escalating problems
›› Error logs
›› Rewards for reporting mistakes
›› Using holistic thinking to spot the “unknown unknowns”
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›› Outsourcing to avoid conflicts of interest
Key Insights / SEI Knowledge Partnership / 2013 SEI Executive Conference
Exploring Distribution Opportunities
Moderator: Dennis Bowden, Strategic Insight
Panelists: Douglas D. Hanson, Charles Schwab & Co., Inc.; Frank McAleer, Janney Montgomery Scott LLC
Bringing funds to market can be as big a challenge as meeting return targets—especially when
distribution systems are changing so rapidly.
What’s different now?
Headwinds for undifferentiated long-only
managers. Beyond getting on platforms, managers
need to get on recommended lists and be included
in wrap programs.
Needs for client education. Presenting products so
they are understandable to clients is critical.
Solution orientation. Less than half of flows are
coming from recommended lists. Instead, advisors
are putting together mini-wrap programs geared
toward income and other needs.
“No load” dominates. Nearly 90% of shares are noload, and most others have no 12b-1 fees.
Trends in product demand
More equity flows. While 85% of flows had been
to fixed income, that is turning around as retail
clients regain confidence in stocks.
Risk expertise. Investors making big allocation
shifts are vulnerable and need advisors’ help
to avoid major losses.
Shifting share classes. A and C shares are
slowly going away, and are being replaced by
No Load shares within the shift to fee-for-advice
relationships.
Revenue sources. With rapid fee compression and
shorter holding periods for funds, focus is shifting
toward the most profitable, as opposed to highest
volume, distribution avenues and advisors.
Modular solutions. Investors want to be able to
swap products in and out, and not be limited to one
fixed solution.
Clarifying alternatives. Definitions are unclear and
inconsistent, confusing product silos persist, clients
don’t understand the importance of correlations,
and some excellent funds don’t get sales support.
The market demands education and proper
presentation.
ETF gains. Flows are climbing and some advisors
are now using ETFs to replace core active vehicles.
Retirement advice. The industry is just beginning
to come to grips with Baby Boomers’ needs for
expertise on funding health care, managing Social
Security, and using products such as annuities.
How managers can stand out
Find ways to add value. Helping platforms improve
their offerings may be the only way to get a meeting
with beleaguered research teams.
Communicate more. Few take advantage of passthrough mailing programs or get out into branches
to educate advisors. It is also important to let
advisors know when a down period is expected
for your fund rather than only talking to them when
things are going well.
Build brand. Successful firms evolve a compelling
story over time. Consistency of voice and message
is as important as the message itself.
Managers who want to do well should think about what
the market wants and how they can help platforms and
advisors build business.
15
Key Insights / SEI Knowledge Partnership / 2013 SEI Executive Conference
Final Thoughts
We hope that this conference summary will be useful as a reminder of what was
discussed in the various panels and presentations—although it does not capture the
invaluable insights attendees gained from one another during Q&A sessions, break-outs
and social events. For those of you who attended, please note that the presentations
remain accessible on the SEI Executive Conference App.
As we have strived to do for the past ten years, the SEI Knowledge Partnership will
aim to provide a content-rich and thought-provoking conference in 2014. We don’t
claim to have all the answers, but we will seek to provide a forum at which to ask the
questions while exploring the emerging trends and enduring challenges facing the asset
management industry.
Until next year, we wish you all the best and continued success.
For More Information
For more information about the SEI Knowledge Partnership, please visit seic.com/ims
or contact your SEI Relationship Manager. The SEI Knowledge Partnership is an ongoing
source of actionable business intelligence and guidance for SEI’s investment manager
clients. Through the Partnership, we engage clients and industry experts to analyze
the trends and issues that will shape business conditions in the years to come,
enabling them to keep abreast of changing best practices, and craft more competitive
business strategies.
17
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