Cerulli: Managed Acct. Business Should be Centralized

In fact, according to a new managed account research paper from Cerulli Associates based on a series of Cerulli industry surveys, providers will have to do whatever is necessary to facilitate advisors and other intermediaries to offer the products to clients without having to pay for significantly more headcount or technology advancements.

“While there is much activity going on toward pushing out managed accounts into the advisor force, much of the success of the delivery will be based on the positioning and responsibility of the managed account groups at each firm,” Cerulli asserted in the report.

One thing is clear: the managed account trend has grown enormously in recent years and shows no signs of abating. Cerulli data shows that managed account assets increased from $300 billion in 1997 to more than $1.3 trillion in 2005. The   cumulative average growth rate for fee-based managed account assets between 2002 and third-quarter 2005 was 24%, including a $500 billion surge in assets over the last two and a half years, Cerulli said.

“Amid the asset growth and the excitement around the potential of managed accounts delivery, there is a lot of noise in the industry,” Cerulli researchers wrote. “This noise comes in the form of new product packaging, revolutionary platforms, and constantly shifting definitions and acronyms.”

The Value of Centralization

The Cerulli report asserts that intermediaries would be best served in their efforts to offer managed accounts to plan sponsors by getting providers to centralize their decisionmaking apparatus under one in-house group and then handled off of one technology platform.

“As intermediaries move toward essentially offering one managed account platform that is vehicle-neutral and program-neutral, advisors will need to adopt a business model whereby they are leveraging the (centralized provider group) as an investment consultant, rather than selecting managers themselves,” the report asserted. “Of course, there will always be room for hybrid approaches that allow advisors to differentiate themselves by servicing certain aspects of the portfolio through their expertise. If advisors are attempting to operate completely independently of the (central in-house group), it is likely that either they have not been educated or trained on how to leverage the group, or the (in-house group) is not adequately addressing the needs of its advisor force.”

Cerulli said there has been notable growth in the centralization of managed account functionality through a unified managed account (UMA) – whether it’s offering multiple vehicles on the same platform, consolidated statements, or comprehensive advice. Still, Cerulli said, firms seem to be struggling more with offering UMAs under a single advice plan that governs all of a client’s positions (similar to an investment policy statement), and also with instituting a simplified proposal generation system.

Information about ordering the Cerulli report is  here .