Three Key Trends Shaping Wealth and Asset Management

_{An interview with Bob Hum, CAIA, Head of Investment Product Development, SEI.}

What trends do you see shaping the Wealth and Asset Management industry? 

We see three. The first is the continued growth of exchange-traded funds. The ETF market stood at more than $11.7 trillion at midyear. What’s astounding is that it took 18 years to reach the first trillion dollars in size, but only three months for the last trillion dollars. ETFs have clearly become the vehicle of choice for many individual investors, advisors, and institutional investors. 

The second trend is the rise of alternatives within the advisor community. Traditionally, alternatives were found predominantly in the institutional space. But that’s changing. Currently, family offices allocate about 20% to alternatives, high-net-worth clients about 10%, but broad financial advisor allocations sit at 2%. That gap is driving many advisors to seek education and tools to move up-market – recognizing that expanding their alternatives offering is key to serving more sophisticated investors and growing their practice. 

Finally, we’re seeing increasing adoption of model portfolios. Currently, model portfolios are roughly a $4.5 trillion industry, but is projected to reach $10 trillion by 2030. Advisors are increasingly adopting scalable, model-based practices – not only to streamline operations and tap into the expertise of asset managers, but also to free up time for deeper client engagement and business development. 

How are investor preferences evolving, and how is SEI adapting its product strategy to help advisors meet those changing preferences? 

We’re responding in three key ways. First, we’re expanding product choice. We have a storied mutual fund franchise across institutional and advisory clients, but we’re now seeing increased demand for ETFs, particularly from the financial advisor community. Whether it’s an ETF, mutual fund, or separate account, we aim to provide the right vehicle for every client need. 

Second, we are investing heavily to build a true Alternatives ecosystem for advisors across technology, education, and products. We recognize the complexity of alternatives, especially when it comes to liquidity and structure. That’s why we are building out the tools, resources, and investment products to help advisors explain and invest in these products with confidence. 

Finally, we’re continuing to support advisors in building model-based practices. As one of the leading model providers in the industry, we’re committed to helping advisors scale their business while maintaining personalization for their clients. 

Switching gears a bit, you mentioned your increased push into ETFs, which has historically been within Factor ETFs. For advisors who may be only somewhat familiar with factor investing, how would you define it in practical terms, and what’s driving its adoption?

Factor investing is about targeting characteristics – like quality, value, momentum, or low volatility – that have historically outperformed or generated strong risk-adjusted returns. These strategies aren’t new, long used by many active managers, but the innovation has been the ability to access these strategies within the ETF wrapper, offering transparency, tax efficiency, and low cost. 

In the past, you’ve mentioned that SEI’s Quantitative Investment Management team was a key reason for joining the company. How does its approach to managing factor exposure set SEI apart? 

Prior to coming to SEI, I was the Head of Factor ETFs at BlackRock, and I’ve been involved in factor investors throughout my investing career. What I really value about SEI’s approach is, first, the active approach of our strategies. Markets are dynamic, and investors want strategies that also are dynamic and can adapt and change based on changing fundamentals or market characteristics. 

The other differentiator is scale and efficiency. SEI delivers active strategies at passive-like costs. For example, our SEI Enhanced Value Factor ETF (SEIV) is an active fund that’s five-star rated, but costs only 15 basis points. 

To me, that is evidence of the scale and efficiency that SEI’s active team has been able to deliver and one of the things that attracted me to SEI.

Why is diversification across factors important in portfolio construction?

Several factors have outperformed over time, but any one factor doesn’t outperform all of the time. As a result, based on the economic cycle, certain factors should perform better than others at different times. We respond and counteract those changes through diversification. 

When markets are moving upward, you may want to buy high-momentum stocks that have trending earnings. In a downturn, you’re likely to want higher-quality or lower-volatility stocks. Combining these factors allows for the potential for outperformance, but with a much smoother ride relative to buying any of the individual strategies themselves.

How do advisors typically start to incorporate factor investing into their work?

We often suggest starting with a diversified portfolio of single factors. Doing that gets them started and diversifies away some of the risk of any individual fund. Some advisors also use factor investing to complement their current core passive exposures. For instance, if they have a 60% allocation to equities,  they’ll allocate half of that exposure to low-cost passive indexes and the other half to active factor products. Many advisors tell us that the appeal of moving toward a factor-based practice is the opportunity to outperform while keeping costs in line with what they’ve done historically. 

Regarding investment products, what have you learned over the years that would help advisors better serve their clients or grow their business?

Over my career, the growth and rising popularity of ETFs has been incredible. One key lesson I’ve learned is that those 4,000+ ETFs are not created equal. Even if they share similar labels, what’s inside can be very different.  It’s critical to understand how the investments are managed and what strategy drives the fund. There is a lot of complexity around that, and just because two ETFs might include “value” in the name of the fund, each might take entirely different approaches to achieving that goal. That’s why I believe advisors should apply the same level of due diligence to ETFs as they do to traditional mutual funds.