In Practice November 25, 2007

Advisers Planning to Increase Use of Managed Accounts

Although all advisers plan to increase their use of managed accounts, registered representatives at broker-dealer firms are twice as likely to plan on doing so.
Reported by

The majority (52%) of registered representatives at broker-dealer firms plan to increase their use of managed accounts in the future. However, registered investment advisers (RIAs), do not plan to be jumping on the managed account bandwagon at the same rate. Only about one-quarter (27%) are expecting to increase their usage of managed accounts, according to recent data provided by Cerulli Associates.

Managed account programs offer advisers at broker-dealers the ability to operate much like RIAs, by offering open-architecture investment management and fee-based pricing, Cerulli notes in its latest Cerulli Edge Advisor Edition report. Half of all advisers say that managed accounts generally create stronger client relationships and are more profitable.

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“The asset allocation component of these programs allows advisers to sell an investment process rather than depending on the sexiness of recent performance to generate a commission,” the report notes. Advisers also like managed accounts because they believe the fee structure aligns their interests with their clients by seeking to grow their assets rather than complete a transaction.

Contrarily, RIAs seem less eager to use managed accounts because they may feel that such programs violate their independence, and often are reluctant to adopt the research assistance provided by many managed account programs, the report suggests. However, RIA firms can often benefit from managed accounts as technology platforms that offer high-end reporting and tax optimization tools.

 

 

 

See also B/D Advice, Beneath the Surface

The Markets November 25, 2007

Participants Favor International and Emerging Markets in October

Participants in 401(k) plans moved a combined $295 million into the international and emerging market equity asset classes in October, according to the results of the Hewitt 401(k) Index.
Reported by

Both international and emerging markets had very strong returns in October: the MSCI EAFE Index (international) gained nearly 4% and the MSCI Emerging Markets Free Index had a return of 11%. As a result, 401(k) participants moved nearly $240 million to international funds and $55 million to emerging markets funds. International funds have received net inflows during eight out of ten months in 2007, with a total of $1.1 billion transferring in year-to-date, Hewitt said.

As a result of the large international inflows, participant net transfer activity was primarily equity oriented on 57% of days during the month. Stable value funds experienced the largest outflows of nearly $158 million.

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Lifestyle funds also received strong inflows, with $91 million moving in during October. For the year, nearly $300 million has transferred into this asset class.

Large U.S. Equity funds won 21.20% of participant-only contributions in October, and Lifestyle/Pre-Mix funds gained 19.23% of participant contributions. Participants put 15.57% of contributions into GIC/Stable Value funds during the month. Overall contributions to the three asset classes reflected a similar distribution at 18.32%, 16.33%, and 13.78%, respectively.

Large U.S. Equities still held the (20.98%) bulk of 401(k) assets at the end of October, followed by GIC/Stable Value funds with 19.83% of assets and Company Stock funds with 16.62% of assets.

The net transfer activity in October was modest, with an average of 0.04% of balances transferred on a daily basis. Three days of the month experienced above normal transfer activity, which is the lowest number of above-normal days since June, Hewitt said.

The Hewitt data is here.

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