Thriving in a Post-DOL Rule World presentation_… · Thriving in a Post-DOL Rule World. Trends...
Transcript of Thriving in a Post-DOL Rule World presentation_… · Thriving in a Post-DOL Rule World. Trends...
©2014 Morningstar, Inc. All rights reserved.
Scott BurnsGlobal Head of Asset Management Solutions
Thriving in a Post-DOL Rule World
Trends – The Move from Commission to Fee-Based Advice is Driving Everything
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g The changing landscape of fund distribution is in full swing in the US and growing Internationally
gWe can now safely say from the US experience that this shift creates the following changes in investor behavior
/Costs matter, a lot – expect flows into indexes and ETFs and “clean/institutional” share classes
/Advisors and retirement plans look for more packaged solutions as they reframe their value propositions – expect growth in Multi-Asset, Fund-of-Funds and “Solutions”
/Advisors will seek to de-risk portfolios – expect less direct equities and more alternatives and fixed income
/Robo/Automated Advice will grow – advisors will need to scale smaller accounts
gAll of these are the rational response of advisors adopting a basis points on assets business model
Global Flow Trends
Annual Flows by Global Category Group
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Global Flow Trends
-400
-200
0
200
400
600
800
1,000
1,200
1,400
1,600
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD
Global Estimated Net Flows by Broad Category Group, USD Bil
U.S. Equity World ex-U.S. Equity Fixed Income Allocation Alternative Commodities Other
Estimated Net Flows by Region and Category, 2015
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Global Flow Trends
Source: Morningstar Direct Asset Flows. All figures in USD billion unless stated otherwise. © Morningstar. All Rights Reserved.
Indexing Continues to Dominate in US, On the Move Elsewhere
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Global Flow Trends
(300)
(200)
(100)
0
100
200
300
Equity Fixed Income Equity Fixed Income Equity Fixed Income Equity Fixed Income
United States Cross-Border Europe Asia
1-Year Net Flows, Major Regions, Index versus Non-Index, USD Bil
Index Non-index
The Move to Institutional Shares is a Long-Term Trend in U.S.
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Global Flow Trends
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-100
-50
0
50
100
150
200
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Annual Net Flows for Active Funds, USD Bil
Lowest-cost quintile
Quintiles 2 through 5
% of Flows 1990 - 2002 2003 - 2015
Lowest Cost Quintile 39% 93%
Quintile 2 to 5 61% 7%
Preference for Low-Cost Funds is Accelerating in the U.S. in the Core
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Global Flow Trends
2015 Asset Flows
Fastest Growing Fund Family in U.S. is Really a Wealth Platform!
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Global Flow Trends
Alternatives and Gold Funds Outpacing the Field
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Global Flow Trends
2015 Asset Flows
9.4%
3.3%
6.1%
3.0%
0.1%
-12.4%
24.7%
11.8%
0.4%
-15% -10% -5% 0% 5% 10% 15% 20% 25% 30%
Tax Preferred
Property
Money Market
Fixed Income
Equity
Convertibles
Commodities
Alternative
Allocation
Global Organic Growth in Assets in Last 12 Months
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Funds of Funds Continue to Drive Growth in Allocation Category Group
Source: Morningstar Direct, Allocation Funds including Funds of Funds, U.S. Domiciled Mutual Funds and ETFs. Data as of August 2015
0
1,000
2,000
3,000
4,000
5,000
6,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Total Global Assets in Allocation Funds, USD billions
Non-FoF Target-Date Non-FoF Non-Target-Date FoF Target-Date FoF Non-Target-Date
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Strong Recent Flows into Multi-alternative and Managed Futures Categories
Source: Morningstar Direct, U.S. Mutual Funds and ETFs, excluding Funds of Funds. Data as of December 2015.
U.S. Alternative Category Flows, USD Bil
-20
-10
0
10
20
30
40
50
60
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Long/Short Equity Market Neutral Multialternative Currency Trading Managed Futures Volatility
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Growth in Alternatives Stagnated in the Last Year
Source: Morningstar Direct, U.S. Mutual Funds and ETFs, excluding Funds of Funds. Data as of December 2015.
Total Assets in Alternative Mutual Funds and ETFs, USD Bil
0
50
100
150
200
250
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Volatility Currency Managed Futures Market Neutral Multialternative Long/Short Equity Trading
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Target-Date is Basically a U.S. Only Category
Source: Morningstar Direct, Worldwide Mutual Funds and ETFs
-100
-80
-60
-40
-20
0
20
40
60
80
Allocation Target-Date Allocation Target-Date Allocation Target-Date Allocation Target-Date
Asia Cross-Border Europe United States
Allocation and Target-Date Flows by Structure and Region, USD billions
Funds of funds Funds
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Incumbent Players Currently Dwarf the Entire Robo-Advisor Industry
Client Assets $trillions.
Robo-Advice
0.0
0.5
1.0
1.5
2.0
2.5
3.0
BAC SCHW MS AMTD RJF ETFC ENV SF FNGN WETF Robo
Source: Company filings, Corporate Insight
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The Wealth Manager Value Proposition Must Align With Client Needs
Source: Morningstar. For Illustrative Purposes Only.
For Financial Professional Use Only. Not for Public Distribution
Discount Brokerage Robo-Advisor Cyborg-AdvisorFull-ServiceWealth Manager
Client DIY Trader & DIY Long-term Investor
Mass Affluent Mass Affluent High-Net-Worth & Ultra HNW
Service Low Cost Trade Execution
Trading Tools
Investment Information
Low Cost Asset Allocation
Low Cost Asset Allocation
Electronic Communication
Basic Financial Plan
Personalized Asset Allocation
Human Relationship
Holistic Goal & Financial Planning
Product Access (IPOs, Alternatives)
Loans
Insurance
Tax Optimization
Investment Alpha
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View Investing More Holistically -- Household Investor Profile Framework
Risk Profile
Investment Attitudes
Risk Tolerance
Inve
stin
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perie
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Ris
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efer
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Savi
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refe
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Risk Capacity
Time Horizon
Current Spending
Inco
me
Expe
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Future Spending
Goa
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Prio
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“Total Wealth”
Liquid Illiquid
Fina
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Hou
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Cap
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Pens
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Cap
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Hum
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How Will Big Data Transform Your Approach to Product Construction?
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Total Wealth Approach
The Total Wealth Approach encompasses the methodologies Morningstar applies to help investors understand, plan for, and meet their future spending goals going beyond the realm of Financial Capital.
Tomorrow’s Team: Defined Processes and Consistent, Compliant Materials
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The Sales Team of Tomorrow
The sales team of tomorrow has one point of contact for content strategy, creation, and distribution, while compliance has oversight into the entire process. Morningstar DirectSM, combines solutions and aligns teams firm-wide.
When you engage advisors and investors online and help them solve a problem, you can begin to nurture them as leads.
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Raising AUM by Leveraging Digital Tools
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Morningstar Solutions
Profile: Large Asset Manager (Top 30)
Business Challenge: Highlight benefits of their funds within portfolios
Solution: Morningstar Portfolio Analysis Capability
• Offered to registered reps
• Portfolio X-Ray, analytics, metrics on performance, holdings, geographic exposure, portfolio risk
• Usage statistics gathered and linked to their CRM
• Client uses this as a basis for follow up calling campaigns
Result: Almost 1,200 illustrations run in one month; 24% converted to actual sales; $18.2 million in added AUM in one month (Feb. 2016)