The sub-council model is expected to continue to develop for some time. Even though the bargaining power is largely with distributors, we can talk about a real partnership between the manufacturer and the distributor. In addition, this form of outsourcing allows know-how to be outsourced into new asset classes as well as extensive geographic coverage. (1) INDEFI: sub-consulting market in Europe: key features and trends, 2019. In a negative interest rate relationship, low investment returns make fees proportionately higher. Cheaper products such as passive investments are a solution, high alpha products or investments in non-traditional strategies (for example. B through sub-councils). Sub-consulting relationships span the entire investment universe. Any type of fund may be under-advised. Mutual funds and variable pensions are among the most frequently under-advised offers.
The next generation of customers is waiting for something else. They want to make sense of their money and, for example, invest in new asset classes, with ESG and Impact privileges. Some of these strategies can be complicated to carry out internally, and sub-counsel can certainly help. In a world where asset management offerings tend to dominate, sub-counsel is a way for clients to access open architecture at a competitive price. This allows them to benefit from their distributor`s operational expertise and better risk management, including through access to transparency in undervalued portfolios. An under-accounted fund is an investment fund managed by an external asset manager. The model is illustrated by the diagram on the other side. An under-advised fund is mainly used by European traders to allow access to an open architecture. The sub-council model is a mix of historical allocation of funds and institutional mandates.
This requires a strong ability to select managers with a proven track record and to monitor them continuously, combined with an efficient operating model for the distributor to set up the delegation. The sub-council model requires scale and operational delays. While replication of some existing processes may seem simple, tailored strategies require more costs and operations (portfolio and risk management, communication and marketing, etc.). In addition, if the distributor is not satisfied with the sub-consultation, it may take a long time to modify or modify them. The royalty structure agreements for advisory services differ depending on the investment market. The fees for sub-advisory funds are generally higher, as multi-position relationships are linked to the offering of a sub-advisory fund. In general, investors should take a closer look at the pricing structures of under-advised funds, which are often higher and more complex than traditional fund offerings. Sub-consultation allows the product to be adapted to a distributor with its own restrictions (risk policies or specific exclusions for actions or sectors in order to meet ESG requirements).
The result is strong business interests and increased purchasing power. Some of the largest and most experienced investment managers in the investment market are developing a sub-advisory platform that allows them to have better access to under-consulting relationships in the market. Wellington Asset Management and State Street Global Advisors are two investment managers who actively seek to offer their services through sub-counsel.