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How Merrill Lynch and Edward Jones Are Getting Cozy with Asset Managers for More "Client-Led" Products

By Rita Raagas De Ramos October 10, 2018

For Merrill Lynch and Edward Jones, the days when they had virtual shelves of pre-fabricated investment products are giving way to more product development collaboration with asset managers, according to executives from both firms.

“We view wholesalers [of products at asset management companies] as the quarterback helping our FAs build their practice,” Scott Thoma, research strategy principal at Edward Jones, said at the Sifma annual meeting in Washington, D.C. last week.

Sandy Bolton, head of investment products at Merrill Lynch’s investment solutions group, said the wirehouse works more closely with asset management companies to develop products for its clients.

“There’s no shelf anymore,” Bolton said, referring to Merrill Lynch’s product rationalization that started in May 2016.

Cutting down the products accessible to its advisors on its platform “from 3,600 to 1,800 … allowed us to focus on products that make sense for our clients,” Bolton said.

The rationalization – which affected funds that either failed to gather assets at Merrill Lynch or fell short of performance expectations – has made it even more crucial for asset management companies to work with broker-dealer or advisory firms from the ground up before running with product ideas.

“We have a different relationship with asset managers now,” Bolton said. She said the product development process is “more streamlined” and tends to get “vetted together” by both parties. “We have a process that is more sustainable.”

Bolton doesn’t expect a repeat any time soon of the massive fund rationalization Merrill Lynch undertook over the past year. That will likely be replaced by “mini-rationalizations,” which Bolton said will include opportunities for asset management companies to fill “gaps” in future product options for the wirehouse’s clients.

Over at Edward Jones, Thoma said the product review team serves as the “gatekeepers” for the firms’ roughly 17,000 advisors.

“Asset managers and product partners are coming to us very early on now,” Thoma said. “They ask us if [a product] makes sense, how we would incorporate it in our client’s portfolios, etc.”

On the other side of the fence is Jaime Magyera, national accounts head of the wirehouse channel at Blackrock, who says that “sometimes, the FAs tell us their idea.”

In those instances, it’s usually because the broker-dealers or advisors already have a specific need from a client, Magyera said.

Also representing the asset management side, Pete Thatch, senior relationship manager at Capital Group, said the product rationalization undertaken by broker-dealers or advisors “makes a ton of sense.”

“FAs are becoming like managers of managers,” Thatch said. “They are more focused on building relationships with clients.”

Thus, product needs are more “client-led,” he said.