Investment Consultants Move Into Retail Wealth Management

By Cyril Tuohy

InsuranceNewsNet

A new report by leading investment researchers Cerulli Associates found that the demand for alternative investment products, such as alternative mutual funds, has created new distribution opportunities for investment consultants over the past decade.

However, the latest installment of Cerulli Edge-Managed Accounts Edition said that educating consultants about how and where these products work best remains paramount.

“This emerging area of managed accounts creates opportunities for asset managers to deliver product to broker-dealers through a consultant instead of approaching the situation through a central research team at the broker-dealer,” the report said.

Alternative investments have become more attractive to many investors as an extended period of low interest rates has made it relatively difficult to sell more traditional products like fixed-income securities or even life insurance.

According to Cerulli, as many as 25.1 percent of all investment advisors said last year that they expected to increase their allocation to alternative mutual funds.

Consultants have made an effort to target banks, broker-dealers and large registered investment advisors (RIA), said Patrick Newcomb, a senior analyst with Cerulli in Boston.

“Investment consultants typically offer investment outsourcing, operational due diligence and liability-driven investment services, and most of these services can be applied to broker-dealers and their advisors,” Newcomb said in a news release.

But as demand for alternative products rises and asset managers move “downmarket” through the use of consultants, this new option within the distribution model also represents something of an unknown for asset managers.

The report said that asset managers have traditionally used a central research team at the home office to deliver alternative investments to broker-dealers because of the scale and expertise required to package the investments before selling them.

Because many advisors remain uncomfortable with building the alternative investment slice of an overall investment portfolio, asset managers should help advisors with the construction of the portfolio, the report also said.

Consultants do have advantages, however. They allow broker-dealers to differentiate themselves from other broker-dealers, and consultants can play the role of an “unbiased change agent,” helping broker-dealers pare back a cluttered investment lineup, the report also said.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].