The investment industry cannot be criticised for being boring.
As a career choice it offers all the hallmarks of an interesting and exciting profession, with markets changing daily, an intellectual stimulation second to none and a virtuous purpose at its core.
But, while the industry is dynamic, it paradoxically experiences little change over the long term.
That was up until a few years ago.
Take the changes within asset management. In spite of markets going up, we find margins coming down.
The trifecta headwinds of strong returns from cheaper passives, a rising regulatory-driven cost base and downward fee pressure has pushed them to respond.
It has become a race for the hyper scalable business model of the fund manager.And respond they have. We see unprecedented M&A activity, from reorganisations (BlackRock, Axa IM) and mergers (SLI/Aberdeen, Pru/M&G, Janus/Henderson, Threadneedle/Columbia), to takeovers (BMO/F&C, Amundi/Pioneer, Invesco/Source), management buy-outs (MBOs) and listings (Old Mutual, Premier).
The distribution landscape has been transformed at an equally brisk pace.
Many distributors are now entering fund management, launching their own funds and/or gaining their own discretionary permissions.
These distributors usually run the investment portfolios for thousands of underlying financial advisers and can therefore achieve institutional fund pricing.
We are also seeing fund raters and fund platforms launching their own funds for similar reasons.
On the institutional side, this practice has been more commonplace, although large asset consultants almost all offer their own investment funds now, too. These are indeed remarkable times.
And so we see a complete coming together of the business models employed by the gatekeepers within both retail and institutional sectors.
It has become a race for the hyper scalable business model of the fund manager.
In response, many fund groups have returned the favour and entered distribution, taking stakes in platforms, advice firms and advice networks. Vertical integration has become almost a cliché, as the line between an investment firm and a distributor becomes increasingly blurred.
There have also been recent, full-scale regulatory investigations into asset management, fund platforms and investment consultants. In each case, the regulator has challenged competition, conflicts of interest, as well as pricing/value for money.
And, almost always, this greater scrutiny is leading to more and more mergers and aggregation.
In the platform space, for example, we have seen platforms change hands and merge (CoFunds, Elevate), as well as a few listings (like Nucleus, Transact). FNZ, the software behind many platforms, is up for sale, too.
We find ourselves with an industry, that almost overnight, has reorganised itself into fewer, larger players, each with a very similar business model.
Fund managers are coming together to create behemoth firms, but are also tempted into becoming distributors.
Advisers are increasingly aggregating their buying power via partners like networks, aggregators, fund raters and outsourced investment partners.
These partners are often becoming fund managers themselves. Platforms are also joining in, with fund launches and ownership changes. And institutional consultants, who advise pension funds, are also offering their own funds.
The pace and magnitude of these changes is unprecedented.
The common threads seem to be that larger is better, the business model of a fund manager is the holy grail and there are increasingly blurred lines between retail/institutional and fund managers/distributors.
We just hope that when the dust settles, independence is not the sacrificial lamb.
Rory Maguire is managing director of Fundhouse
