ETFs are drivers behind shifting revenue streams

ETFs and model-driven separate accounts are the drivers behind shifting managed account revenue streams for asset managers, according to a report by The Cerulli Edge.

Three years ago, revenue from subadvisory separate accounts made up roughly one quarter of total asset manager revenue in managed accounts, which was more than 11 times the amount represented by model-driven separate accounts and ETFs combined. Today, the revenue from subadvisory separate accounts versus the combined total of model-driven separate accounts and ETFs is virtually the same, according to the report.
 
The changes in vehicle use across managed account platforms have also shifted asset managers' revenue streams. "There is more diversification today, compared to three years ago, and with the uncertain future growth of the vehicles used in managed accounts, asset managers need to evaluate their current offerings," says Jeff Strange, head of Cerulli's managed accounts practice.


Cerulli believes that asset managers should consider providing their strategies as a traditional separate account, a model-driven separate account, and a mutual fund (as well as an ETF for managers with the capability) to hedge themselves in the event that one vehicle experiences stagnant growth in the future.


While the theory of a vehicle-neutral environment is a good one, resistance remains from managers that want to protect their mutual fund business as they can collect significantly more revenue from a mutual fund. "At this point, the only incentive asset managers have to expand the vehicles in which they distribute their product is an in-depth understanding of fee-based managed account revenue trends and a belief that these trends will continue," says Strange.

Founded in 1992, Cerulli Associates is a research firm specializing in asset management and distribution trends worldwide.

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