The Four Traits of Successful Asset Managers

And three firms that have them.

David Levy, former co-chief investment officer Platinum Partners. (Michael Nagle/Bloomberg)

David Levy, former co-chief investment officer Platinum Partners.

(Michael Nagle/Bloomberg)

Morningstar — perhaps the most powerful arbiter of quality in asset management — sees four essential traits in firms that thrive for the long term.

BlackRock, T. Rowe Price Group, and Charles Schwab Investment Management exemplify these qualities, Morningstar financial services sector strategist Greggory Warren said in a report published Friday. He laid out a template for winning in the industry, as those three are.

The first quality is differentiation. Successful firms can do many things well (products, asset classes, geographies); do one thing extremely well (steadfast active manager T. Rowe Price, for example); have serious scale (like BlackRock); or benefit from vertical integration.

When Warren and his equity research colleagues assess U.S. managers’ competitive power, they look for differentiation foremost. For example, does the company have a more diversified product set that would make assets sticky across market cycles? If not, is it a niche provider that investors will stay with because switching is expensive?

The second trait: price point. “Active funds need to be more cost-competitive,” Warren wrote. “We believe that by gradually lowering management fees and expense ratios, active asset managers can give their products a leg up over higher-cost offerings in the same category, as well as eventually make themselves more cost-competitive with passive products.”


Morningstar attributes Schwab’s success to its aggressive pricing, for example. “Our manager research group has long praised Charles Schwab Investment Management for putting investors first,” he wrote. The company’s “disciplined focus on low-cost core strategies has fueled considerable growth the past few years.”

Thirdly, long-term success hinges on consistently outperforming the competition and making sure investors know it, according to Morningstar. “The impetus is on active managers to improve the disparity that exists between their performance and their benchmarks.”

Finally, investment companies either adapt their business model proactively the marketplace evolves, or they rot. Those are the two avenues, as Warren sees it. “We look skeptically on companies that are working to repair serious deficiencies in their operations or that have struggled to adjust to changing conditions,” he wrote.