By James Langton
(September 20 – 09:00 ET) – The future of asset management is technology and distribution, says Henry McVey, financial services analyst with Morgan Stanley Dean Witter & Co. in New York.
Speaking Friday at the Securities Industry Association conference in Chicago, McVey sketched out the landscape in the U.S. fund industry. He described a situation that is emerging in Canada too: slower growth, higher asset concentrations, and few winners in a crowded field.
Through the first half of 1999, the U.S. fund industry has seen ten big companies garner 75% of the net flows into mutual funds, says McVey. In Canada, statistics from Toronto-based research house Investor Economics Inc. found 58% of fund families were in net redemptions in August, including 15 of the 20 largest funds.
Virtually all the growth in the U.S. business has come from market appreciation, not new asset flows, says McVey. Index fund popularity is on the rise – as it is in Canada. No-load funds find minimal resistance in penetrating the load distribution channel. And positive brand image is becoming the differentiating factor among companies.
With the world getting tougher for fund firms, McVey suggests firms should focus on distribution. “Margins may be down, but it is the sweet spot in the industry,” he said. “You can control their client and you can control their wallet, taking power from the product manufacturers.”
He highlighted technology as the real key to long-term success. He sees competition coming less from other distributors, and more from technology companies, such as Yahoo!, AOL and Intuit.
In order to survive, traditional financial intermediaries will have to do a better job, offer better value and get away from the product business. The must get into the service business, he said.