Despite the headlines proclaiming its demise, active investment management is not going extinct — it’s evolving. The traditional mutual fund may be fading, but active decision-making now shines through new channels: model portfolios, direct indexing, and self-service apps. Whether it’s a retail investor fine-tuning a separately managed account (SMA), an advisor allocating across ETFs, or an endowment selecting specialty managers to meet diverse investment policy requirements, the index is no longer the boundary between passive and active — it’s the starting point for active decision-making.
Investment management is, after all, decision-making as a service. What’s changing is who (or what) is making which decisions, what tools are being used to make them, and how those decisions — and their results — are being delivered to end clients. While traditional active mutual funds have indeed seen significant outflows — $432 billion in the 12 months to 31 March 2025 — those dollars haven’t vanished from the market. According to Morningstar’s US Fund Flows research, they’ve largely rotated into passive vehicles, which took in $568 billion over the same period. On the surface, that shift supports the “passive takeover” narrative. But it actually reflects a reconfiguration of where and how active choices are being expressed.
Beneath the surface, active decision-making is more widespread, more diversified, and more structurally embedded in the investment landscape than ever before.
Beneath the Surface
The packaging of active decision-making has evolved beyond the traditional mutual fund. Compelling trading apps combined with near-zero transaction costs have led to a boom in self-directed investing that, as Broadridge’s 2024 US Investor Pulse study points out, spans all generational cohorts. These self-directed investors increasingly focus on ETFs and direct equities rather than mutual funds.
Meanwhile, as of June 2024, 79% of US equity investors maintained an investment relationship with a financial advisor. These advised assets are also shifting from mutual funds to ETFs and direct equities, facilitated by the proliferation of SMAs and unified managed accounts (UMAs). SMAs, in particular, offer individual investors unprecedented levels of access, transparency, and tax efficiency through strategies like tax-loss harvesting. In other countries, the trend is the same: self-service and personalization of investment solutions at scale.
Source: Broadridge U.S. Investor Pulse Study – June 2024
Either way, someone — or something — is making active decisions.
The self-directed investor wants hands-on control. They are active by definition, but are not willing to pay a third party for the decision-making. Implicitly, they either believe they can outperform professionals, they value the entertainment of market participation enough not to care, or both.
The advice-channel investor, conversely, has outsourced decision-making to their financial advisor, trusting that a professional will deliver better outcomes. Financial advisors have never been more scalable as a business, partly because they can easily outsource the actual investment decisions to an expanding universe of model portfolios, ranging from strategic asset allocation models to tactical thematic strategies to risk-targeted solutions. These portfolios contain the same active decision-making found in mutual funds, just without the trade execution services.
Institutional allocators continue to value alpha and will pay for it. As indexes have become increasingly concentrated, these sophisticated investors are turning back to active managers for diversification. But today’s allocators are less easily seduced by past performance; they demand evidence of skill.
The industry is responding to these changes. Active equity portfolio managers, driven by cost-cutting imperatives, are reevaluating the division of labor within their investment teams. Product strategists are increasingly evaluating quant and fundamental strategies side-by-side, applying fresh eyes to the consolidation of multi-brand product ranges. In leading firms, formerly siloed investment teams are being integrated to foster collaboration and cross-pollination of ideas. This approach emphasizes decision-making quality, regardless of whether the signal originates from human insight or an algorithm.
Key Takeaway
Surface-level data suggests that active fund management is an industry in retreat: dollars flowing out of active funds and into passive alternatives. But under the surface, active decision-making is more widespread, more diversified, and more structurally embedded in the investment landscape than ever before. The imperative for active managers is no longer preservation, but adaptation. In a marketplace that demands personalization, transparency, and demonstrable value, relevance depends on embracing new delivery mechanisms and decision-making frameworks. The future of active investing will be shaped by those who evolve with it — quietly, strategically, and decisively.
More to Think About from CFA Institute Research and Policy Center
Smart Beta, Direct Indexing, and Index-Based Investment Strategies
Beyond Active and Passive Investing: The Customization of Finance
Future State of the Investment Industry
