Changing investor needs and the shift to “open architecture” are altering relationships between asset management firms and investment fund distribution platforms in the United States, according to new research from Greenwich Associates.

“The end goal is to attract assets to the platform,” says Greenwich Associates consultant Lori Crosley, “and the increased use of open architecture means platforms must take a smarter and more strategic approach to manager selection and thoughtful recommendation in order to create demand pull among investors in addition to supply push.”

Greenwich Associates asked firms participating in its 2007 Third-Party Distribution Research study to identify the most important investor-driven trends influencing their markets. In response, more than 20% point to the growing emphasis on retirement income and planning, and almost a quarter cite related innovation in investment fund distribution products, such as guaranteed living benefits. “At a practical level, demands for new products and advice related to retirement planning and savings are altering the criteria by which these professionals evaluate and select managers for their platforms and recommend management products to their investors,” it says.

The research also found that distributors say they are upgrading product offerings by designing packaged products that provide income and allow for achievement of individual retirement goals. “The biggest trend we see is the focus on companies looking at how to unlock the retirement income process, and how to work with clients (investors) effectively to develop a retirement income solution,” said a respondent from a variable annuity insurance company.

In particular, study participants note the growing importance of products such as retirement income vehicles, asset allocation products and low-cost passive funds, like ETFs. Products like target-date maturity funds are gaining traction among investors as simple and relatively professional tools for investors to build and manage their retirement savings over the course of their careers, it also noted. “Investor needs are changing as Baby Boomers pass from the asset gathering phase of retirement planning to the ‘consumption’ phase,” says Crosley. “As a result, distribution platforms are creating supply by staffing up and reaching out to investment managers or external consultants in order to deliver ‘Best of Breed’ investment options.”

Broker/dealers have been the most aggressive in adopting open architecture, Greenwich found. Only 20% of the broker/dealers participating in the Greenwich Associates study limit the number of managers on their menus. At the other extreme, nearly 55% of registered investment advisors maintain manager limits, as do 50% of defined contribution record-keepers and 47% of annuity insurance companies.