The Emo Aspect Could Be Hurting Adviser Performance

Over the past five years, packaged portfolios have outperformed adviser-driven portfolios, says new research from Cerulli Associates.

Packaged portfolios now currently represent nearly $900 billion in assets and have become incredibly popular, according to Frederick Pickering, research analyst at Cerulli.

Much of the success of packaged portfolios has been driven by a new business model, with direct platforms gathering significant assets without having a traditional adviser force. 

In “Managed Accounts 2015: Battle for Discretion,” Cerulli analyzes the fee-based managed account marketplace. The report, in its 13th iteration, is the result of ongoing research and quarterly surveys of asset managers, broker/dealers (B/Ds) and third-party vendors, which captures more than 95% of industry assets.

Cerulli believes a key factor in the outperformance of the packaged portfolios is the fact that they remain invested in the markets throughout market pullbacks and recoveries. During market dips, in fact, these portfolios experienced more significant losses than adviser-driven accounts. However, they outperformed adviser-driven accounts following down quarters, likely because the home office stayed fully invested—since it is untouched by any emotional decisionmaking—and was able to capture the entire rebound. “Advisers feel pressure from their clients, and themselves, to act to avoid short-term losses,” Pickering explains.

Where advisers give more weight to brand reputation with clients and wholesaler relationships, home-office teams place more emphasis on quantitative factors, according to Cerulli’s reseach.  

“We believe the outperformance is primarily driven by qualified home-office teams dedicating their time to asset allocation, manager selection and staying invested in the market during downturns,” Pickering says. “Home-office teams are more quantitative in their approach to manager selection and are not as swayed by qualitative factors such as fund company’s reputation or wholesaler relationships.”

Advisers have a lot of hats to wear, but they must remember that portfolio construction is not a part-time job, Pickering says. On average, advisers spend 60% of their time on client-facing activities, 18% on administrative activities and only 17% on investment management. 

More information about “Managed Accounts 2015: Battle for Discretion” is on Cerulli’s website.