A recent article in Barron’s explores the future of the fund industry. The article notes that growth appears to have stalled; the industry experienced a 1.4% decline in assets last year after a period of average annual increases of 13% beginning in 1965.
While fund flows indicate a preference for passive products, the article finds that investors remain interested in well-performing and low cost active funds. According to the article, opportunities may be available for funds pursuing smart beta strategies and those that can provide growth and “special opportunities” as supplements to passive funds. In general, the author asserts that the shift in the industry may benefit smaller advisers with fewer funds and “truly active” stock picking.
The article predicts that the use of robo-advisers will increase as a result of the DOL’s fiduciary rule. The author compares the increased use of robo-advisors to on-line banking, which was a positive development for both the banks and the banks’ customers. Vanguard, Fidelity, Schwab, and BlackRock have already begun embracing the move away from traditional advisors.
The author also explores how the investment industry may begin to use technology to better serve investors – much the same way that innovative operating companies have. For example, the article suggests that more data could allow asset managers to provide insurance, financial planning, and tax advice in highly customized products based on an investor’s individual circumstances.