Open architecture investment management has become the norm among most leading RIAs and wealth managers. One of the drivers behind open architecture was that it allowed fiduciary firms to clearly distinguish themselves from wirehouses and other brokerages whose objectivity of advice may be compromised by the sale of proprietary product.
However, as the popularity of the RIA model has grown and as brokerages themselves have embraced open architecture, it has become increasingly difficult for wealth managers to differentiate themselves on this basis. This challenge is compounded by the fact that open architecture firms generally have access to the same manager pools and commonly use the same managers.
In this market environment, it is not surprising that we have noticed a resurgence of interest in proprietary management by wealth managers. While we believe that open architecture will remain the dominant investment model going forward, we expect a higher percentage of newly minted RIAs to manage money in-house and more existing industry leaders to selectively reintroduce proprietary management as an option.
In the end, the question of open architecture versus proprietary management has to do primarily with a firm’s capabilities and its view on what’s best for clients. But how the question is answered also has important implications for branding and the challenge of differentiation in an increasingly competitive market.
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