Eventually a tipping point will be reached when existing “status quo” investors see the light and demand a new approach. Eventually, investors will do their homework and compare the service they are currently receiving with that of other providers.
Some investors are “manager junkies,” who are mesmerized by money managers and believe that selecting great managers is the key to success. Such clients choose to chase hot managers. Part of the problem with this tactic is that investors have many choices which can be overwhelming and lead to unpleasant experiences. Confusion turns into frustration, which leads to either indecision or post investment remorse. The bottom line is that investors do not want more options, they just want better ones. They want to personalize portfolios based upon their own objectives.
Open architecture or outsourced “Chief Investment Officers” (CIOs) is a rapidly growing model first adopted by pension funds and other institutional investors and more recently by family offices. This model allows the provider to have discretion over the client’s portfolio making it easier to make crucial investment decisions. The trend toward discretionary advice has been steadily increasing in recent years.
The advantages of open architecture are clear: objective investment advice that avoids conflicts of interest and earns the trust of clients; high conviction for a concentrated group of investment managers who can consistently outperform the market; and an unwavering client focus as a top priority.
Although they may not be invested in ideal solutions, most clients will not act until their investment results are truly horrific. However clients are continuing to explore alternatives and the industry will need to provide more options. As clients move out of more traditional products and shift to new types of providers, the marketplace will become very different.