When Kevin Barr, head of global investment management and asset distribution at $335bn AuM US firm SEI, comes to London to visit private banks, he never expects an easy ride.
He and his colleagues have been coming to Europe for the best part of two decades, enjoying periodic successes. They have also experienced tense moments with clients, leading to termination of some initially-attractive partnerships.
But these teething troubles did not deter SEI Investments, a Pennsylvanian multi-manager and outsourcing firm, which celebrated its 50-year anniversary in 2018. Not only is the company here for the long haul, but Mr Barr believes a recent alignment of demographic, educational and market factors have made these far-flung opportunities more attractive than domestic ones.
These factors include mass transfer of wealth between generations, saturation of US wealth management compared to foreign territories and the rise of an increasingly tech-savvy and knowledgeable young investor base.
“Wealth creation and growth in Europe and Asia, plus the maturation of advice in these market places,” bode well for SEI’s push into wealth management, which focuses on reducing costs for banks and clients.
“Investors know the cost of products and understand performance,” says Mr Barr. “They are asking questions today, which 25 years ago, they didn’t.”
In an environment where interest rates are at a 10-year low and returns difficult to come by, securing “performance at a fair price” is a key objective. Moreover, this sector is moving from single-source investment solutions to embrace both internally and externally managed funds, encompassing alternative as well as traditional managers.
Large private banks, including JP Morgan, offer the best partnership potential, he believes. Traditionally strong in asset management, they are now becoming keener to avoid conflicts of interest triggered by pushing proprietary products through relationship managers.
“There is a great opportunity here to work with firms on outsourcing their asset management activity, and we’re not talking about just using third party mutual funds,” says Mr Barr. HSBC, for instance, has been a client since 2003.
“We are dealing with large wealth managers and banks that already have their own investment expertise,” says Mr Barr. Rather than trying to duplicate this, SEI, by providing manager research and selection, helps banks build a customised offer.
This notion of banks incorporating outside solutions into their own traditional business models, without actually acquiring the external player, is already happening across other industries. Wealth management is now ripe for this transformation, believes Mr Barr. “Many companies are using Amazon in their cloud-based services. With the SEI model…we will work hard to build out the technology to support distribution channels.”
Bulk buying of asset management solutions at reduced prices is central to SEI’s offer. “When we are working with large clients, their cost of production is going to go down.”
Savings in the “20 to 30 per cent range” against internally managed solutions are par for the course, says Mr Barr, with “additional savings on top of that” generated by separate account structures.
But Mr Barr also warns potential clients about some pitfalls of outsourcing: “You give up control and flexibility for lower investment costs.”
SEI’s historical relationship with Italy’s mass affluent advisers Mediolanum, for which the US firm once ran €3bn ($3.3bn) in multi-manager strategies, is a case in point. The deal was wound down in 2005, partly because SEI wanted a tighter relationship with the Italian advisers, allowing the Americans to come in and train them and also meet clients.
The Italians pushed back against what they felt was an aggressive incursion into their hard-won territory, eventually developing their own multi-manager programme, leading to the partnership’s demise.
SEI hopes to build on these early experiences when making arrangements with current bedfellows, including 1,000-strong French adviser and consultant network Inovea.
Specialising in insurance and real estate products for mass affluent clients, this is a similar partner to Mediolanum. But there are some key innovations in the new partnership, announced at the beginning of 2019, according to Mr Barr. These are goals-based investment portfolios, along with linking behavioural finance with traditional financial theory.
“We need to manage the issues of fear and greed, which often hamper financial objectives,” says Mr Barr. “Most firms are still selling products, whether active or passive. They are not dealing with the main issues of what determines a client’s financial plan.”
