“Asset holders must consider their own circumstances, their resources, profiles & objectives, to determine which investment architecture best serves their goals.”
As the investment industry continues to evolve alongside government regulations, client objectives and industry innovations, asset owners face an increasing variety of investment architectures. To describe these options in an accessible and engaging way, let’s employ a metaphor that everyone can appreciate: food—in particular, homemade meals versus pre-packaged meals.
The Homemade Meal Investment Architecture
The best homemade meals are crafted from the best/most-liked ingredients. From organic eggs, fresh from a nearby farm, to hand-caught salmon flown in from the coast of Norway, picky eaters today can choose from an incredible assortment of foods sourced from a vast array of vendors—from local farmers markets and independent tea growers to European cheesemongers and international supermarkets. In the investment industry, this open access to a wide spectrum of providers and investment options is called an open architecture. This architecture allows asset holders to explore customizable strategies and select specific services and options from a diverse host of providers.
Your grandmother knows where to source the best/most-liked ingredients for the holiday meal—eggs from the shop across the river, green onions from the neighbor’s vegetable garden, chicken from the butcher with the toothy smile. Open architecture, likewise, allows asset holders to source the best/most appropriated investment tools and talent, from managers and custodians and trustees to administrators and fund admin providers. In an open architecture, no single provider has a monopoly on quality, talent or innovation. The entire industry is open for business, so asset holders can leverage the full scope of available options when seeking solutions for their investment needs.
The Pre-Packaged Meal Architecture
Prepackaged meals are part of every culture. In Japan, there is the bento. In India, the dabbawalla. In Brazil, well, the banana (very healthy!). Prepackaged meals are popular because they require limited amounts of time, investment and sweat equity. In the investment industry, the pre-packaged meal is known as a bundled architecture, where the asset holder purchases a combination of services all bound together in a single bundle. The asset holder simply chooses a particular bundle upon determining that the services in that bundle best suit their investment strategy and growth needs. Simply make the purchase and open up your bento box, dabbawalla container or banana. No haggling with the butcher. No dishes to clean. No grandmother repeating the same story for the nth time.
Bundled architectures do provide the convenience of pre-packaged services that do not require additional thought or customization; whereas open architectures allow asset holders to alter the pre-packaged services by shopping around and browsing the latest industry innovations being developed and offered by the full diversity of providers. Ultimately, asset holders must consider their own circumstances, their resources, profiles and objectives to determine which architecture best serves their goals… and appetites. Perhaps a mixture of both fits best!
Want to learn more about which investment architecture, or combination of the two, can create the most value and returns for your investment strategy? Contact a Mercer investment (and foodie) specialist here.