SMA Assets Up 29% at YE 2003

For the quarter ending September 30, 2003, the distribution of managed account assets across investment disciplines was generally consistent with the previous quarter, according to the latest Financial Research Corp. (FRC) analysis. At the end of the third quarter, domestic equity represented 56% of assets with international/global equity taking 19%, fixed income 17%, and balanced 8%.

In addition to assembling the quarterly asset data, MMI works with FRC on other data, including quarterly analysis and reporting of marketwide asset growth and distribution trends.

Industrywide, the size of the average SMA also continued to climb. At the end of 2003’s third quarter, the average account size was $238,220, an increase of 1.1% over $235,672 recorded at the end of June 2003 and up 13.4% from the $209,990 average at the end of September 2002.

Wirehouses continue to dominate the managed account market, holding more than 80% of industry assets at the end of the third quarter of 2003. The bank channel, although still holding less than 6% market share, showed nearly 20% growth from quarter to quarter. “Banks could prove to be one of the fastest growing channels in the SMA industry over the next few years,” said Michael Evans, FRC vice president, in a statement. “However, wirehouses, which are more established in the industry and ahead of the curve on sales training and product development, should maintain a dominant position for the foreseeable future.”

New entrants continue to take market share from established players, particularly among the asset managers, MMI said. Specifically, as in previous quarters, market share of assets and accounts reflects a steady transition from the largest asset managers to mid-tier groups.

Tier I managers – those with more than $5 billion in assets — accounted for 66% of accounts and assets at the end of September 2003, a nine-month decrease of 2.3% and 1%, respectively. However, Tier II players – those with $1 billion to $5 billion in assets — increased market share to more than 30% of both accounts and assets, a year-to-date increase of 3.2% and 1.6%, respectively.

Companies of all sizes clearly rely on a handful of distribution relationships for the bulk of their business. Tier I firms have, on average, 27 program relationships, but nearly 76% of assets under management (AUM)  for the average Tier I firm (nearly $2 billion) is based in its top three relationships. Separate account assets at Tier II as well as Tier III firms – those with less than $1 billion in assets — are even more concentrated within their top platform relationships, at 78.9 % and 79.8%, respectively.

The MMI’s quarterlyAUM figure is based on program totals reported by the leading distribution firms, including Smith Barney, Merrill Lynch, Morgan Stanley, UBS, Prudential, A.G. Edwards, Bank of New York, Wells Fargo, SEI, Lincoln Financial, Brinker Capital and others, which collectively hold approximately 80% of the market – in addition to totals reported to MMI by a selection of smaller firms that represent the remainder of the SMA industry.

Separately managed accounts are individual accounts offered by financial consultants utilizing a broad range of advisory services and are usually managed by professional, independent money managers using an asset-based fee structure.