Products March 24, 2008

Morningstar Announces Active ETFs in Managed Account

Morningstar Investment Services on Monday introduced a managed account offering made up of five actively managed portfolios using exchange-traded funds (ETFs).
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According to a Morningstar news release, Managed ETF Portfolios are actively managed using a “core and explore’ investment process, which combines “core’ positions that provide exposure to broad asset classes in an efficient and low-cost manner with “explore’ positions that seek to add value by taking advantage of opportunities in the markets.

Selection of explore positions are based on a proprietary ETF-evaluation system developed by Morningstar Investment Services that combines macroeconomic and fundamental factors, the announcement said. Among other factors, the ETF-evaluation system assesses the composition, structure, and liquidity of individual ETFs, and marries it to research on fundamental factors such as valuation and growth drivers of the underlying securities.

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The product is offered exclusively through financial advisers, Morningstar said.

“ETFs offer investors exposure to specific segments of the capital markets in a diversified, low cost, and tax efficient manner similar to index funds,’ said William Harding, director of research for Morningstar Investment Services, in the announcement. “Our new Managed ETF Portfolios combine these positive attributes of ETFs with our objective research, analysis, and portfolio management expertise in actively managing these portfolios to ensure they are well positioned given their risk and return objectives.’

Morningstar said Ameritas Investment Corp. and Centaurus Financial, two independent broker/dealer firms, recently selected the new product for use by their investment adviser representatives. Ameritas has 600 adviser representatives and Centaurus has 500.

In Practice March 24, 2008

Tiburon Predicts Strong Growth Among Fee-only Advisers

The number of fee-only financial advisers has been relatively flat in recent years - there are 10,466 Securities & Exchange Commission registered fee-only financial advisers – but the number will increase to 27,000 by 2012, according to research from Tiburon Strategic Advisors.
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In a press release, Tiburon, a market research and strategy consulting firm, said fee-only financial adviser average assets under management will grow to $310 million by 2012. Fee-only financial adviser clients will increase to 3.2 million by 2012.

Fee-only financial advisers currently generate $30 billion in revenues, but revenues will increase to $55 billion by 2012, Tiburon predicted. Fee-only financial advisers earn $15 billion currently, but their net income will increase to $20 billion by 2012, the release said. However, Tiburon says that fee-only financial advisers’ profit margin will decrease to 36% in 2012. The number of fee-only financial advisers served by custodians will increase to 27,000 by 2012.

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As for the current marketplace, Tiburon said many advisers are really fee-based; fee-only financial advisers account for just 35% of all fee-only and fee-based financial advisers. Fee-only advisers have 25% fewer accounts, on average, than fee-based & commissioned advisers.

Fee-only financial advisers with firm size under $25 million and no assets account for one-half of financial advisers, and over half of all fee-only financial adviser assets are controlled by the 2,000 advisers with greater than $200 million in assets.

Most fee-only financial advisers commented during the research that offering wealth management services is a key to attracting high net worth clients, according to Tiburon. One-third of fee-only financial adviser assets come from retirement plan rollovers and another third is money moved from a different broker. Fee-only financial advisers’ ultra-high-net-worth investors have increased 2% in 2006, while their high-net-worth investors have decreased 8%

When it comes to investments, fee-based financial advisers may buy $75 billion per year in annuities, and will invest over half of their assets under management in mutual funds and individual securities. These advisers prefer to receive contacts quarterly, and financial advisers generally prefer less contact as the portion they accept in commissions increase, and fee-only financial advisers and fee-based independent financial advisers are far less likely to want in-person visits than fee-based wirehouse financial advisers.

Fee-only financial adviser mergers and acquisitions are up over 600% since 1999, with 81 deals taking place in 2007, Tiburon’s research found.

Executives can purchase Tiburon’s “An Initial Overview of the Fee-Only Financial Advisors (RIAs) Market” research report by contacting Sarah Sage at SSage@TiburonAdvisors.com or 415-789-2540.

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