TOP MONEY MANAGEMENT WON’T BE ENOUGH: SERVICE NOT RETURNS, KEY TO FUTURE SUCCESS, ACCOUNTANT PREDICTS

The highest returns won’t be a good enough reason for money managers to attract customers in the cut-throat investment management world of the future, says one consultant. Rather than the best stock picker, investors will likely flock to the money manager who picks a niche market, understands it fully and offers more services.

So says Simon Jeffreys, who is studying the future of the business for PricewaterhouseCoopers LLP. Too many small money managers attempt to compete with the biggest companies by being all things to all people, he says.

“Asset managers are not going to be able to be leaders on all fronts unless they have huge scale,” says Mr. Jeffreys, London-based global leader in the Big Five accounting firm’s investment management industry services group.

He describes a future that looks like this: The largest fund companies will be supermarkets, offering all kinds of portfolios. The smaller ones will offer designer products, sacrificing performance in return for providing services like check writing.

For instance, a firm might specialize in the retirement market, going beyond mutual funds to provide links to estate planning services and retirement real estate.

Money managers and financial advisers agree. Peggy Farley, chief executive of Ascent Management Services Inc. in New York, divides the future into two worlds, supermarkets and boutiques.

“Creativity for the boutique will go into the investments it makes,” she says. “It’s a different kind of imagination that is required. The large investment firms are not looking at clients’ individual needs, they are creating a lot of funds. While they may call it portfolio management, it’s not. It’s just funds.”

The smaller fund companies are going to have to get to know their customers better, and that means developing relationships.

“Higher net-worth clients are looking for a customized approach to help them meet their goals and objectives for their family,” says Ronald W. Roge, president of his own advisory firm in Bohemia, N.Y.

Managers who can’t pull their heads away from the Bloomberg terminal and think about corporate strategy for the near future are in trouble.

“The qualities that make a good money manager don’t necessarily equal the qualities of strategic, visionary leadership,” Mr. Jeffreys says.