In its report, “Managed Accounts: Asset Manager Distribution Roadmap,” Cerulli noted that historically, the selection of active managers “is typically the most tangible manifestation of (the) advice” for which managed account clients are paying. However, the heightened ETF emphasis Cerulli foresees is being driven by a demand for diversification, liquidity, and sensitivity to costs, the report said. .
Cerulli noted that the most significant change to the managed accounts landscape has been in the composition of assets across vehicle types, and the mix of assets across program types. The asset shift is most indicative of advisers’ move away from packaged advice programs and toward those with more flexible portfolio construction (investment selection and asset allocation), the report said.
With more value being projected onto asset allocation, then, there is a greater opportunity for ETFs. More than half of sponsors (57%) believe that the opportunity for ETF distribution will be through sponsor-discretionary programs, the report said.
But don’t necessarily look for ETFs to rule the competitive roost in managed accounts anytime soon.
“Even though ETFs provided a solution during a volatile time, it does not appear to be an ephemeral trend, but the long-term role of ETFs is unclear—primarily because advisers are so divided on how they will use the vehicles,” Cerulli wrote. “So much of the value of managed accounts is derived from selecting best-of-breed investment products that it would take a cultural and attitudinal shift to see ETFs challenge the traditional use of mutual funds and separate accounts. Stronger emphasis on asset allocation-based returns and risk management through diversification will strengthen the role for ETFs.”
Cerulli said revenue sharing is still a “valid impediment” to more widespread ETF use in managed account programs.
In general, the Cerulli researchers contend, despite the democratization of alternative (along with all-cap and opportunistic) strategies through mutual funds, sponsors tend to think that sponsor-discretionary programs will still be the medium through which the vehicles are distributed. For sponsors to feel most comfortable from a compliance standpoint by controlling the allocation to these products, Cerulli said, the way these strategies and alternatives are used will depend largely on other components of the client holdings.
Finally, regarding unified managed accounts, Cerulli commented: “The number one reason sponsors cite for uninspired UMA adoption is that advisers are simply set in their ways and do not want to use a new program. Some of this is understandable, given the fact that many advisers are nearing their own retirement and do not want to begin testing a new program with their clients’ assets.”
More information is at www.cerulli.com.
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