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The Impact of Disintermediation

Disintermediation has become a topic of growing concern in the investment management business. Disintermediation refers to investors, both institutional and individual, that have lost confidence in professional money managers to deliver alpha or meet long-term client needs and have decided that they can do the job better themselves, and for less cost.

If disintermediation is in fact a sizeable movement, it raises the question of what type of firm might be best structured to serve its growing number of followers. Among current industry players, Vanguard may be most favorably positioned particularly as it builds out its non-commissioned advisory model. But a more novel alternative might be a hybrid of indexing robo advisors like Betterment or Wealthfront combined with a DIY active manager like Motifinvesting. Such an innovative amalgam would offer the self-directed investor a choice of low cost passive management, facilitated active management or a combination of both. Indeed, investors could build their own core-satellite portfolios deciding when they feel they can add alpha and when a low cost index solution is the right choice.

How strong a movement disintermediation will turn out to be remains to be seen. However, it’s clear even now that new service models in investment management are being developed, and traditional approaches are being reworked, to appeal to this new breed of disaffected investors.