Wirehouses and broker-dealers cutting funds from their platforms is bad news for asset managers, right?
Well, apparently not if you’re Joseph Sullivan, chairman and chief executive of Legg Mason.
Instead of something to be feared, Sullivan sees one firm’s recently announced fund cull as a $14 billion opportunity for the firm.
His logic is this: the assets from the cut funds are now up for grabs, and if you have more funds on the platform, than off, it’s all to play for.
On an analyst call on Thursday, Sullivan said: ‘One distributor took almost a third of their funds off of the platform and a few of those funds were ours. The third of the funds which were taken off of the platform represents almost somewhere between $12.5 billion and $14 billion of which $107 million was ours.’
‘We’re never happy to lose any assets but in the scheme of things we’ll take that trade all day long if we now have access to $14 billion of AUM [assets under management] in motion, because it’s got to go somewhere. That’s a good trade to us.’
Over the last year wirehouses and broker-dealers have been reducing the number of funds they offer advisors, in part due to the Department of Labor’s (DOL) fiduciary rule, but also for commercial reasons.
Earlier this month, Ameriprise Financial Services cut the number of funds on its platform by 1,500, leaving around 2,000, only days ahead of the fiduciary rule partially coming into force.
Rival wirehouse Merrill Lynch began rationalizing its wealth management platform in September 2016, cutting the number of funds available from 3,500 to 1,800.
All three, along with smaller firms like Janney Montgomery Scott, cut funds based on combination of performance, price and popularity.
Despite delays to the DOL rule and the possibility that it may be revised or replaced, Legg Mason head of business development Tom Hoops believes the trend of cutting funds will not be halted.
‘This train has left the station,’ he said.
Sullivan (pictured) added that large firms with distribution power and a broad range of offerings would benefit most from the changes.
‘We’re not the only one, we believe there are other firms that will win along with us but this is a great change in the industry and there are firms that are losing a significant amount because they don’t have the breadth in vehicles or breadth in strategies and they have no distribution,’ he said.