Adapt to succeed: The Van Eck Mantra
It is not whether products and services offered by fund managers will eventually become commoditised. It is just a question of when, according to Van Eck Australia managing director, Arian Neiron.
Keeping this, and the fact that financial advisers are under increasing pressure to offer higher levels of service and advice to clients, in mind, the challenge for fund managers is to focus on relationships and their fiduciary responsibility, and to be as trustworthy and transparent as possible, while being innovative.
Neiron also noted financial technology and the transforming digital age will have as much an impact on the funds management industry as it has had on the advice industry.
"The digital age we are in has intensified the pressure on fund managers to empower and engage clients so they understand the forces impacting performance," he said.
"The rise of the robo-adviser and what the impact to the advice model and customer engagement will be are yet to play out."
What the funds management industry has seen is the proliferation of exchange traded funds (ETFs), and the size of this market has burgeoned despite market volatility as investors continue to allocate money into it.
"Passive strategies are becoming core and ETFs are the gorilla in the room with almost US$3 trillion in assets. Smart beta has emerged from nowhere and is now north of $US400 billion," Neiron said.
Perhaps this trend is a response to challenging and unpredictable market dynamics. Investors were seeing low, nil, or even negative interest rates in many countries, unprecedented central bank intervention, and geopolitical issues that posed greater risk to an increasingly connected world.
Neiron said academia had illustrated that asset allocation represented more than 90 per cent of a portfolio movement.
"Therefore, asset managers need to be providing product suites that are suited to the current environment," he said.
Neiron believes his role and the role of his firm is to provide investors access to new investment opportunities. Van Eck Australia, based in Sydney, is a wholly owned subsidiary of New York-based Van Eck Global, and began operations in 2012.
Market Vectors ETFs have been available in the US since 2006, and specialises in Australian and international equities, as well as international commodities (gold miners).
The firm launched four ETF offerings in 2015 in a bid to give investors access to China A Shares (CETF), the world's largest gold equity ETF (GDX), and a strategic beta Australian small cap ETF (MVS).
Neiron said the firm will launch more ETF offerings in 2016 and engage with financial advisers on the benefits of ETFs.
Financial advisers would also have to embrace progress and adapt to changing environments, think about their value proposition and clients' changing needs over time, and design strategies to ride out the trends impacting the market.
"Their asset manager is a great point to start for portfolio tools and insights to assist them in acquiring, retaining and growing their client's wealth," Neiron said.
"However they should continuously diversify their thinking and challenge conventions."
Planners also have to invest time in understanding the macro environment and have to be able to communicate to clients how it relates to their portfolios.
"Advisers must ensure portfolios are as robust, transparent, liquid , and as cost effective as possible while still delivering the investment objective that investors are trying to achieve," Neiron said.
AUTHOR
Malavika Santhebennur
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