Almost a third of asset managers expect their product development budgets will increase more than budgets for other initiatives in 2010, a positive sign, although there are signs firms are moving more cautiously than in the past, according to Cerulli, the Boston-based consultancy.

“Managers must refrain from a “me too” approach to product development, unless they can point to substantive competitive advantages. In addition, differentiation is extremely important as firms build new solutions in a crowded marketplace,” said Pamela DeBolt, lead author of the report.

The report said that many firms expect budgets will rise to meet client demand for alternative and global strategies to help improve their portfolios, the report said.

While the report is about asset management, it also throws light on the budget pressures that are affecting the entire financial services industry, including wealth management. On the one hand, firms are trying to cut costs and rebuild margins, while also ensuring that client service improves, particularly as many investors have lost trust in the business.

Fewer than 40 per cent of respondents said budget constraints are hampering product innovation efforts in 2010, far fewer than the 91 per cent of respondents that gave this answer two years ago, said Cindy Zarker, head of Cerulli’s retail asset management practice.