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11 min read

Three Predictions for 2018

Next year, we’ll check back to see how we did.

Asset Management Outsourcing, Outsourced Chief Investment Officer, Direct Indexing, Turnkey Asset Management Programs, Exchange Traded Funds, Wealth Management Solutions, 2018 Predictions.

We’d like to make some predictions. We don’t have a crystal ball, but we do get to see early indicators of what’s going on from prospects and clients. It’s insider information, of a sort. So, here they are, our predictions for 2018:


#1: New Envestnet competitors. 

Envestnet has established itself as the 800-pound gorilla of the fintech space. And for good reason. “Best of breed” sounds great in theory, but advisors don’t want to be in the systems integration business, and can’t afford the cost and compliance risk of halfway solutions that rely on manual file uploads/downloads or, worse, manual data re-entry. Envestnet has done an impressive job of putting together an integrated set of tools that can work across multiple divisions.

But there are always those who will want to dethrone the king, and we predict Envestent is going to get some serious challengers this year. Despite (or perhaps because of) its size, Envestnet has vulnerabilities. Their product is getting old. It was created out of multiple disparate independent systems that were not engineered to work together or interact with a digital front end. And it’s frustratingly closed (difficult to integrate with 3rd party systems).

There are several newer players who we think are well situated to challenge Envestnet. With their recent $30mm fundraise and acquisition of Junxure, AdvisorEngine is becoming an ever more prominent rival that’s building their platform around the advisor and client digital experience. Investedge, with one trillion dollars already on their platform, is another potential rival with a strong competitive foundation, though they will need to add some functionality to compete head on with Envestnet (and they’ll have to deal with the confusing similarity of names).


#2: New outsourced solutions that can manage assets better than most advisors.  

In  just the last month, we’ve spoken with at least three new firms offering “outsourced overlay and outsourced CIO (Chief Investment Officer) services. Some very large asset management firms are also considering entering the space. These offerings are targeted at advisors who have better things to do with their time than rebalancing, tactical asset allocation and product selection, which are not their primary value propositions.

What makes these new outsourced offerings different from Turnkey Asset Management Programs (TAMPs) of old? Existing services are usually expensive and somewhat cookie-cutter. Newer outsourced services will address both of these problems. They aim to do better than advisors can do on their own—at lower cost. Better in terms of customization and tax management; better in terms of product coverage and due diligence. The ability of outsourced providers to perform their services well is not a knock on advisors, merely a reflection that specialists have the time and resources to get really good at the one thing they do.

Another advantage of the newer outsourced services is that they are far more customizable. “Outsourced CIO” does not need to mean “zero input from the advisor.”  Advisors can collaboratively add their own views on asset allocation and product.  

We’ve written (here, here and here) about how centralized rebalancing groups within an organization enable firms to simultaneously reduce dispersion and increase customization (including optimized tax management). Logically, outsourced overlay is just a furtherance of this centralization trend.

#3: The (continued) rise of direct indexes and smart beta. 

Most advisors don’t want to be in the business of beating benchmarks. And they want to cut product costs. This pressure has led to increasing adoption of direct indexes and smart beta strategies.

Exchange Traded Funds (ETFs) beat 80% to 90% of all products out there, in large part because of their low costs. Direct indexes are even better. We’ve talked (here and here) about how direct indexes (in which investors directly own a basket of stocks representative of the underlying index) can beat ETFs on an after-tax basis.  

Smart beta is one of the most active areas of asset management. Smart beta portfolios are a cross between active and passive approaches. Like all active strategies, they employ tilts of one sort or another. Like passive strategies, smart beta portfolios are transparent, based on (usually fairly simple) rules. For example, there are low-cost smart beta strategies for implementing momentum strategies, equal weight strategies, volatility-based sector rotation strategies, etc. In fact, there are indexes (published lists of securities whose performance is tracked) for many smart beta strategies, somewhat blurring the distinction between smart beta and Indexing. The key difference is that smart beta strategies always aim to do more than track a simple cap weighted list of stocks. 


These are our predictions for 2018.  But as the saying goes, “prediction is hard, especially about the future.” (This has been variously attributed to Yogi Berra and Niels Bohr, but it’s apparently just an old Danish proverb.)  Next year, we’ll look back and see how we did.


For more on this topic, check out Automated Rebalancing & Specialization.


President, Co-Founder