Attention Kmart shoppers: There's a blue-light special on retirement funds in aisle six. While that image is perhaps a bit jarring for button-down money managers, the reality is that money management in 2050 might look a lot more like retailing than its current form.
There is a mounting consensus that a technology-driven future and the continued rise of individual responsibility for retirement savings will lead to convergence of institutional and individual marketplaces.
That convergence, experts said, will lead money management products to become commodities -- like soap or cars -- and distribution to take a retail-oriented strategy, with a brand name becoming as important as investment performance.
"Both the institutional and retail (clients) in fact will become one and the same," said Kathleen Corbet, chief executive officer of Alliance Capital Ltd., London.
The story of recent years "has been customization at the plan sponsor level. But the future of technology is customization at the individual level," said Robert Reynolds, president of Fidelity Investments Institutional Retirement Group, Boston.
This crossover between institutional and individual clients will be the defining issue for money managers in the 21st century, experts said. It will divide managers between those that integrate and distribute various financial products and services and those that manufacture investment products.
Richard Morris, managing director of Putnam, Lovell, de Guardiola & Thornton Inc., London, said the industry will transform from its cottage-industry past to an industrialized, managed business where the ability to "reliably deliver value to the client" will become most important.
"And I think that it will end up looking more like retailing than anything else," he said.
The potential power of technology also exposes a fundamental split among money managers over the future of the industry: between those who see investors relegating their stashes to money managers vs. those who predict that more highly educated investors will take matters into their own hands.
Members of the former school believe most individuals will not want to devote their free time to devising complex investment strategies.
"Will everyone spend all their time managing their assets or do they have to work?" said Carol Proffer, head of the private equity advisory unit at Pilgrim Baxter & Associates Ltd., Wayne, Pa.
Some managers believe investors -- both institutional and individual -- will move toward hiring managers to provide a total return with some level of guarantee.
A manager then could invest in a variety of different actual and synthetic instruments and asset classes, using technology to engineer a secure investment.
"I believe these boomers will look at total return on sources of income instead of trying to pick stocks," said A.D. Frazier Jr., president and chief executive officer of INVESCO Inc., Atlanta. As with a synthetic guaranteed investment contract, the individual wouldn't care how the product is constructed as long he receives a reliable return, Mr. Frazier said.
Tim Harbart, president of State Street Global Advisors, Boston, said predictable returns with a 95% confidence level could be generated in such products.
A manager could create a mutual fund or exchange-traded instrument using a diversified portfolio or perhaps a long-short strategy, he said. The next step would be to reach outside the organization and pull in other managers' funds where gaps exist.
For money managers, the implications are striking. Instead of competing with all other managers, they now would be both competitors and partners, Mr.
"It will definitely be essential in the institutional marketplace. Our largest clients are looking to us to do more things for them," he said.
Other experts, however, believe investors will assert more control. Better-educated customers will demand "less hype and more content," said Mike Phillips, president and chief executive officer of Frank Russell Co., Tacoma, Wash.
"In 50 years' time, the individual will have taken control over his destiny to a much greater extent," he said. Now, investment products are sold rather than bought, he said; that will reverse.
Putnam Lovell's Mr. Morris concurred: "The lesson of the Vanguards of the world (is that) informed consumers make smart decisions."
Investors will use a multiplicity of managers, Mr. Phillips said. "The idea of using one money manager to implement your investment strategy in 50 years' time will be as bizarre a concept as using one stock as the only stock in your portfolio today," he said.
Costs of managing portfolios and executing trades will be lower, Mr. Phillips said. And, as technology causes distribution and production costs to decline, there will be a massive transference of wealth to individuals from corporations.
Whether investors ultimately opt for a packaged product or choose an array, some experts believe they will need advice.
Technology will boost the ability to make sound investments, but it still depends on the competence of the computer programmer, noted Jack Miller, vice president of business development, General Motors Investment Management Corp., New York.
Echoed Nobel laureate Bill Sharpe: "To the extent you can turn over the controls to somebody or something, you have to worry about who created the software. There may be a role for a Consumer Reports-type of institution, to tell you who you can trust."
Mr. Sharpe, who is retiring as STANCO 25 Professor of Finance at Stanford University's Graduate School of Business this fall, is chairman of Financial Engines Inc., Palo Alto, Calif., an advice giver to 401(k) plan participants. He believes individuals need help in understanding their investments, particularly what risks and returns they face. Individuals also need guidance in understanding what benefit promises are guaranteed and what is the risk they won't receive their expected benefits, he said.
The Internet's role
Technology -- specifically in the form of the Internet -- will play a crucial role in how investments are distributed and communicated, and thus shape the future of money management.
"In 50 years' time, the primary form of distribution will be the Web, without a shadow of a doubt," said Frank Russell's Mr. Phillips.
A growing number of experts predict an eventual split in the business between distributors of investment and related products and manufacturers of those products. They also expect that core money management products will become commodities, whether passively or actively managed.
Observers believe there will be 10 to 25 major players that will distribute products -- theirs and others' -- worldwide. The effort will require vast amounts of capital investment to achieve dominance on a global scale.
"The scale of investment required to reach that level is huge," said Simon Jeffreys, a partner and global leader of PricewaterhouseCooper's investment management practice, London.
But there's nothing that says financial services firms will be the only distributors. Were a Microsoft Corp. or an AT&T Corp. to "invest heavily in distribution, they would dominate that distribution channel," Mr. Jeffreys said.
Other observers noted major retailers, including supermarket chains, already have started distributing financial services to British consumers.
Experts think the major distributors will demand a growing share of fees as core money management products become a commodity business and managers have to fight for shelf space.
That's where branding will become increasingly important. Putnam Lovell's Mr. Morris said managers can add value -- and thus command higher fees -- only by taking greater levels of risk. But that involves "more fickle clients, more volatility and a much more difficult-to-manage staff."
The answer is to use multiple branding, as Procter & Gamble Co. does with soap or car manufacturers do with different lines. Ford now owns Jaguar, Astin Martin and Volvo, all with distinct personalities, Mr. Morris said.
Not everyone buys the thesis that a small number of distributors will run the business.
"Anything that becomes the dominant paradigm runs the risk of being replaced," said Jim Creighton, chief investment officer, global indexed investments, Barclays Global Investors, San Francisco.
In a short time, he said, the trend in book selling has gone from the expected dominance of mega-bookstores to the threat of e-commerce.
The problem with crystal ball-gazing is people tend to extrapolate from the current position. In reality, major events -- wars, inflation, recessions, technological breakthroughs -- cause drastic swings in the course of history.
Looking out 50 years, Fidelity's Mr. Reynolds said, government is the wild card. While there is a global need for retirement plans to provide for the needs of the world's aging population, "local legislation will dictate the shape of the industry."
Everything from the eligibility of participants to types of permissible investments to whether foreign service providers will be allowed in is on the table, he said.
Even if a major disaster occurs, some experts believe the growing role of the individual in providing for retirement is irreversible.
"Basically, the state is going to be out of it," said Richard Wohanka, chief executive officer of WestLB Asset Management, London. The government's "sole role is to act as a net for the small percentage of the population that can't look after itself."
But, Gordon Clark, Halford Mackinder Professor of Geography at the University of Oxford, posed this question: "What if poor people -- and there will be lots of poor people -- can only afford the stripped-down version" of investment options?
GMIMCO's Mr. Miller thinks a sustained downturn would shift the burden for providing for retirement back to the state and employers. "I would think the pressure would be well-nigh unstoppable," he said.
INVESCO's Mr. Frazier makes no bones about it: "This notion that individuals will take (full) responsibility" for their retirement savings and will take over entirely from government "is folly."