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M&A in investment management: The importance of independence

Two of the largest separately managed account (SMA) providers to independent RIAs are themselves no longer independent

The trend that defined the past decade of investment management has been the race to low-cost investing, driven by the rise of exchange-traded funds (ETFs). BlackRock led the movement with the acquisition and development of iShares while prominent names like Morgan Stanley sat and watched. 

Now that most brokerages charge zero commissions, ETFs have lost some of their luster. Why pay an investment manager to buy an ETF for you when you can do it for free? Beyond saving money on fund fees, owning the underlying stocks directly, or “direct indexing,” provides critical tax benefits. You can also personalize your holdings in a separately managed account (SMA). 

Looking ahead, we think personalization will be the next great leap in investment management. BlackRock recently acquired Aperio to stay ahead of the curve, and Morgan Stanley snapped up Parametric to avoid being left behind again.

But they're missing something.

The implicit assumption in each deal is that scale will continue to pick winners and losers in asset management. Without question, scale was needed to compete in the ETF fee war of the 2010s, but will it define who delivers the best personalization? We don't think so.

In gaining scale, each SMA provider loses something: independence. They become inflexible, adopting the agendas, allegiances, and innovator's dilemmas of their acquirers. Parametric's offering will be manufactured to serve Morgan Stanley's 16,000 Wirehouse advisors. Given the opportunity to displace Parametric as the SMA provider of choice for other Wirehouses, we expect Aperio will follow suit. 

Ensuring that SMAs don't conflict with iShares' future growth will be another challenge that BlackRock and Aperio face. Independent RIAs using these platforms may suffer as a result. 

At Vise, we believe in independence. We are independent, meaning the advisors we serve are independent, and each of their clients is treated independently, with a custom single-stock portfolio built by our proprietary artificial intelligence. No conflicts of interest, no commoditized investment products, and no allegiances aside from those to our clients.

We wish our competitors the best of luck as they integrate into their new parent firms, and we will continue to use our competitive advantage of independence, flexibility, and focus to provide RIAs the best platform for personalized investment portfolios in the industry.

Thank you to our clients for your continued faith and support in our product. To the RIAs concerned about what changes these acquisitions will bring to your SMA offerings, we look forward to meeting you.

April 12, 2021