Bob Veres predicts new investment model that could give advisers edge over competition

Says advisers might one day get client portfolio advice directly from asset managers

Sep 7, 2017 @ 11:58 am

By Jeff Benjamin

+ Zoom

In the future, advisers will subscribe to communities of asset managers for investment strategies that they will use to make decisions about client portfolios, according to Bob Veres, who delivered the keynote address at the Insider's Forum in Nashville on Wednesday.

Mr. Veres said the increased "adviser alpha" could be worth at least 2 percentage points in value to client portfolios.

"The new investment model will be crowdsourcing," he told the audience of nearly 400 financial advisers. "In the future, you'll be subscribing to communities of asset managers."

To that end, Mr. Veres predicts that mutual fund companies will be selling their intellectual capital directly to financial advisers that will enable the advisers to decide whether to buy or sell a position based on an individual client's situation.

"The value could be as high as 1.6% a year, and it eliminates the price-impact factor that moves markets when (the mutual funds and large institutional investors) buy and sell," he said.

Mr. Veres estimates the price-impact factor to be worth another 53 basis points, which brings the total value to over 2% per year.

Buying intellectual capital, in the form of portfolio trading decisions, directly from money managers, he explained, will "swing the pendulum back to where advisers have more information than the consumer."

"This will restore the value of asset management" at the adviser level, he said.

"Eventually fund companies will get out of the back office business of buying and selling, and simply sell their intellectual property to advisers," Mr. Veres said. "And the advice profession will be able to provide adviser alpha of 2% per year."

While he said the trend of selling intellectual capital is already showing up in various forms at firms such as Riskalyze, HedgeCoVest, and Trust Company of America, the pace will be ramped up with the next bear market.

"Right now, 37% of all managed assets are in passive portfolios," he said. "Passive management will go through hell in the next bear market."

This should represent good news for advisers who are feeling increasingly boxed out by the flow of financial data directly to consumers.

In an earlier presentation on Wednesday, Joel Bruckenstein, president of Technology Tools for Today, described investments as "largely commoditized."

"The investment process is an area where most advisers add little or no value," Mr. Bruckenstein said. "I believe there will be a lot more outsourcing of investments in the future."

Following Mr. Veres' comments on advisers buying portfolio-manager investment decisions, Mr. Bruckenstein agreed that it is a way to help advisers stay relevant when it comes to asset management.

In recapping his five-year predictions for the industry, Mr. Veres was in line with Mr. Bruckenstein in seeing a future that is heavily influenced by technological advancements.

Among the things Mr. Veres expects is "more face-to-screen meetings, that will be the end of geographic marketing limits."

He also sees increasing specialization among advisers, including a "cyborg service model that is heavily leveraging technology."

"We are going to see a real distinction between sales agents and real financial professionals," Mr. Veres added. "And a shift away from the AUM-revenue model, which I call trail commission in drag."


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