In its eighth annual “Cerulli Quantitative Update: Managed Accounts,” Cerulli says that the continued growth of the fee-based marketplace will continue to pick away at wirehouses’ share of the market. Wirehouses currently have 56% of all managed account assets; Cerulli projects this number to drop to 50% by 2014.
The report says that the advent of unified managed accounts (UMAs) added another wrinkle to an already complex industry, as asset growth and innovation both shape the $1.86 trillion managed account industry. That $1.86 trillion is being more and more divided into distinct asset vehicles each year. As of 2Q2010, the division was as follows (dollar amounts in billions):
- Mutual funds, $754.8, 40.6%
- Separate accounts, $536.1, 28.8%
- Individual securities, $359.5, 19.3%
- ETFs, $88.3, 4.7%
- Cash and other, $70.9, 3.8%
- Model-driven separate accounts, $50.3, 2.7%
Following the market volatility in 2008 and 2009, Cerulli saw advisers move their clients into the rep-driven programs because of their flexible nature. This allowed advisers to allocate large portions of client portfolios to cash and fixed-income investments to appease client concerns. This movement of assets would have been a great time for UMA programs to capture flows, the report says, but advisers still have concerns about the packaged nature of these programs and the lack of portability. With the market stabilizing, Cerulli notes advisers have been slowly shifting their clients’ assets out of cash and back into the equity markets.
As for the attributes of managed accounts as a replacement for wirehouses, Cerulli was surprised that “adviser freedom” was fifth on the list, preceded by the fee structure (67.7%), research assistance provided by B/D or platform (63.0%), manager availability (61.3%), and client assets (56.6%). The report says there is little debate that the wirehouses collectively have the most robust array of managed account programs. But as fee-based business becomes more central to advisers in all channels, the managed account platform will be recruiting and retaining advisers more frequently.
Cerulli says that while plenty of advisers have access to UMA programs, adoption remains low—many aren’t using the programs available to them. The current UMA programs offered to independent advisers are not characterized by the same types of features that distinguish other successful managed account programs in this channel: flexibility, open architecture, and a heavy reliance on mutual funds. For other advisers, namely those in the wirehouse and regional channels, the UMA may represent another way in which their broker/dealer is tethering them to the firm and furthering their ownership of the client relationship by taking control of the investment management.