Morningstar Advisor - October/November 2013 - (Page 51)

this one, this one, this one, and this one? It could be a combination of an ETF, a mutual fund, an SMA or managed ETF portfolio, and maybe some laddered bonds. All these product types are similarly easy for the advisor to use. Rekenthaler: I know in the retirement space there’s a perception at a certain level of assets, the largest plans are not so interested in mutual funds, they want to do CITs— it’s cheaper, it’s what big plans do, and mutual funds are more for the littler plans or mid-size plans. Does the same thing occur with the retail individual investor? Is there a point at which somebody that’s saying, ‘Hey, if I’m going to give you a million dollars for this particular investment, I’m not going to put a million into a mutual fund or half a million, or five million.’ I’m just trying to get a sense for how it plays out. Burns: We’ve gotten pretty far along in terms of what is happening. So let’s talk about why this is happening. I think one of the reasons change is happening has to do with technology. Dion: That’s the key driver. The impact of technology on the way that product has been delivered into the marketplace the last 10 to 12 years has been tremendous. However, while technology has made managed products easier to use and has allowed advisors to streamline portfolio management, I think there’s a lot of opportunity to use technology to help make distribution more efficient and cost effective. There are a lot of social media technologies that are being used in other industries to help enable and streamline knowledge exchange and relationship-building. Those technologies really haven’t been leveraged to improve distribution in our industry. Jessee: It wouldn’t be unusual in a wire house or to have an advisor say ‘Hey, once I’ve got an account over X amount, I want to use an SMA vehicle or whatever.’ But again, I don’t know if it’s quite as easy as say, over a certain dollar size, clearly that client’s going to use a different type of vehicle. I think the advisors do it to some degree. I think it’s safe to say in the mutual fund industry you still see very large dollar amounts coming into traditional open ended funds. Burns: Jim, as an asset manager, do you think Jessee: Yeah. For example, we had a trade here that came in a couple of weeks ago that’s in excess of $90 million, into a mutual fund, by the way. So like you said earlier, it’s a very broad, large marketplace and I think choice and options are good things as long as they’re informed decisions. I think for an asset manager, where you feel like you’ve got a competitive investment platform and you can make the case that you can manage money on a risk-adjusted basis—I actually think that you can do quite well just staying there. You don’t have to necessarily think about what’s the next greatest idea. I take a lot of confidence in the fact that the industry has actually served investors quite well over long periods of time. Again, I’m not implying that those other things don’t have a place. They do. But I also think the core building blocks are still an important part of meeting a long-term investment need. that the asset-management industry was quick enough to harness technology to face off with where the advisors were in Curious Case of MFS using technology? Burns: Rich, I came up with this concept Jessee: That’s a good question. I believe the called “the curious case of MFS” because answer is yes, but there’s no doubt that the door’s been open for companies who can come in and provide a solution, particularly for a market such as RIAs. as I looked at MFS and a lot of other similarly Dion: Yeah, I would agree with that, and I think you see, as Jim pointed out, that that’s a lot more prevalent in the wires and the regionals than it is in the RIA channels. Their knowledge of and use of SMAs far exceeds what we see in the RIA space. I was looking through the report Morningstar puts out on a monthly basis in terms of where the AUM is going. Despite all the talk about alternatives, which have their place, you still look at flows to large blend, large growth, large value and foreign large blend funds—I just described four of the five top AUM categories. sized asset managers that were traditional style-box-type managers—when you look across the spectrum, most of those firms are losing assets right now. They’re struggling, The one thing I would add, though, about what’s driving it is there’s no doubt there’s still a tremendous amount of market scars from late ‘90s and 2008. To some degree I wonder with some of the product innovation being done if everybody is looking for the silver bullet. One thing it seems to me that sometimes is not talked about enough in the industry is the core building blocks and the core asset classes. There’s still a tremendous amount of potential business there. unless they have a very large fixed-income business. But as I got to know MFS, it was curious. Their assets were growing every year. So Rich, how do you explain an MFSlike asset manager and their ability to draw in assets in this changing distribution landscape? Dion: Obviously, they’re doing a good job running money. That’s 90% of the challenge. At Placemark, we are more focused on providing the widest range of product options without limiting advisors’ ability to MorningstarAdvisor.com 51 http://www.MorningstarAdvisor.com

Table of Contents for the Digital Edition of Morningstar Advisor - October/November 2013

Morningstar Advisor - October/November 2013
Contents
Contributors
Letter From the Editor
How to Make Social Media Work for You
Do Mutual Funds Still Have a Role?
More Personal Than Finance
How to Handle Your TIPS Positions
A Real Estate Veteran Starts From Scratch
Investments á la Carte
Investment Briefs
When to Say No
Take a Guarded Approach to Homebuilders
Fund Distribution Has Been Turned on Its Head. Now What?
Winning the Distribution Battle
Active ETFs Wait for Their Heyday
A Fund Firm Defies Indexing Trend
Piloting New Channels
A Good Fit
The Predictive Power of Fair Value Estimates
Does Being Prudent Pay Off?
Utilizing Utilities’ Total Return
Stuck in the Middle Is Not a Bad Place to Be
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
The Good Guys Win

Morningstar Advisor - October/November 2013