The investment industry has some real issues and questions to answer, just like it did post-1974. Since that era, we went through all the slicing and dicing and we had all these little style boxes — but that's been blown away. …

We own only a couple of industries, and we ignore everything else. That was considered too risky, but I said, 'Well, your diversification that you think you have is not really diversifying the risk.' I have been waiting for several years for what I would call a flushing out to finally demonstrate what I have been talking about. Thus, the investment industry over the next five to 10 years is going to look materially different from the investment industry pre-2008.  [Our emphasis]

Bobroff:  Not only have investment managers witnessed significant declines in equity assets (causing a decline in revenue), but their mix of assets has shifted to fixed income and money market funds where the revenues are less (or almost non-existent). Margins are being challenged on all fronts.  The most successful mutual fund managers are those that probably are privately owned and have the willingness to rationalize product.  Today there are over 8,700 funds — before you even look at the classes of shares — and this industry needs to significantly reduce that number through mergers, sales or liquidations.  Downsizing or rightsizing is essential for money managers, as this decline will be with us for a long period.  Fund companies need to address how they fit in the new industry. Boutiques will become the norm rather than the exception, as full product line vendors (except the very large groups) will become a thing of the past.

Ellis:  Asset management firms have to differentiate themselves from their competition, through superior investment performance, innovative products, superior marketing, or a better value proposition.  No more than one or two investment managers can occupy the far right of the performance curve consistently. Investor demand will force migration of managers from public mutual funds to private money. There are few or no innovative products; it is too easy to copy other mutual funds due to required disclosure. Superior marketing may have a chance, but fund companies been consistently bad marketers, and they are hobbled by regulatory requirements.

For mutual fund companies, the only hope and the only sustainable advantage is an enhanced value proposition. This may come from lower prices, improved access to managers, access to seminars or other elite forms of communications, or better targeting by segments. Funds are trying these now, but getting it wrong.

Roame:  The key is being diversified on multiple levels.  Asset managers preach this to investors, and now they must practice this as companies.  Are they diversified by product?  If consumers go to cash or to short-term bonds, do they have an offering?  Earning a small number of basis points on these assets is still better than nothing. If ETFs or SMAs are the hot new product, are they in the market?  Are they raising money in multiple markets?  The 401(k) channel, for one, is still picking up assets.  Are they diversified geographically?  For example, Franklin Templeton earns 60% to 70% of its revenues outside the U.S., which is a nice little hedge.  Fund companies covering multiple distribution channels are more likely to navigate their operations through this market.

Of course, they must cut costs and stop hiring or paying bonuses.  Keeping revenues up and expenses low is the short-term key to surviving.