Tue, Oct 17, 2017
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Advisors' discretionary business to increase from 59% in 2011 to 71% of their assets by 2013

Thursday, November 17, 2011

Scott Smith
Opalesque Industry Update - Cerulli anticipates the percentage of advisors' discretionary business will increase from 59% in 2011 to 71% by 2013. Cerulli attributes the jump to advisors' interest in building their role as discretionary portfolio managers. However, for many advisors, packaged programs may be just the solution to improve efficiency and client performance.

The impact of advisors' preference for discretionary programs has significant implications for broker/dealers.

"Firms must walk a fine line between extolling the virtues of a centralized services approach and respecting the autonomy of advisors to serve investors as they see fit," comments Scott Smith, head of Cerulli's intermediary practice.

From the broker/dealer perspective, advisor use of firm-driven investment solutions offers economies of scale both at the firm and practice levels and has the potential to reduce risk exposure on multiple levels. While advisors generally recognize that outsourcing portfolio construction activities could benefit their practices from an efficiency perspective, there is widespread reluctance among advisors to embrace this approach.

"Our research shows that advisors prefer the freedom of open programs over packaged solutions," comments Patrick Newcomb, senior analyst in Cerulli's managed accounts practice.

"The acceptance of packaged programs by advisors could ultimately be driven by the performance of the programs relative to the advisor's own results. Client management and portfolio management are often not intersecting skills, which would suggest consideration of firm discretionary solutions to focus efforts toward client services. Since advisors are subject to the psychological traps that reduce long-term investor returns, only process-oriented research-focused advisors should consider undertaking discretionary decisions," continues Newcomb.

The results of the limited analysis that has been conducted on advisors' ability to asset allocate has not reflected favorably on advisors' skills. Though packaged equity programs suffered in 2008-2009 due to their largely fixed asset allocations, post-recession performance has been encouraging. Discipline paid off for advisors who remained in platform models throughout 2009 and 2010.

"Advisors have yet to embrace the programs en masse, as there has not been a marked shift back into packaged programs despite their superior comparative performance," continues Smith.

Cerulli's research shows that most providers charge higher expenses for participation in packaged programs, which is a concern for advisors as it means increased client costs or reduced compensation.

"Level fees for firm- and advisor-driven programs create a program-agnostic environment, while avoiding disincentives for the firm-driven packaged solution. While B/Ds may be reluctant to give up additional compensation that can come with packaged programs, they must weigh whether increased efficiency of advisors using firm-driven programs will outweigh the potential incremental revenues foregone under a levelized pricing scheme," concludes Smith.

These findings and more are from The Cerulli Edge: Advisor Edition, 4Q 2011 issue.Source

Press release

bc

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Regulatory - David Stockman: Trump tax reform overhaul is a pipe dream, stocks are heading for 40-70% plunge, Carried interest tax: How much does it matter?, Odey sees 'terrifying' mix in MiFID, tapering, asset values, Hedge funds come together to share cost of MiFID and research, SEC turns up the heat on U.S. investment advisers, India's Sebi asks hedge funds to report investments in commodity derivatives[more]

    David Stockman: Trump tax reform overhaul is a pipe dream, stocks are heading for 40-70% plunge From CNBC.com: David Stockman is warning about the Trump administration's tax overhaul plan, Federal Reserve policy, saying they could play into a severe stock market sell-off. Stockman, the R

  2. North America - Puerto Rico rejects loan offers, accusing hedge funds of trying to profit off hurricanes[more]

    From TheIintercept.com: Puerto Rico has rejected a bondholder group's offer to issue the territory additional debt as a response to the devastation of Hurricane Maria. Officials with Puerto Rico's Fiscal Agency and Financial Advisory Authority said the offer was "not viable" and would harm the islan

  3. Investing - WPP targeted by short-selling American hedge fund, Sun co-founder sells secretive hedge fund on big chip trade[more]

    WPP targeted by short-selling American hedge fund From Cityam.com: An American hedge fund has mounted a bet against WPP, the world's largest advertising group, with a trade worth almost £90m. Lone Pine Capital has built a short position worth 0.51 per cent of the FTSE 100 company,

  4. Hedge funds up as industry adjusts to rising rates[more]

    Komfie Manalo, Opalesque Asia: Hedge funds have reshuffled their portfolio after nearly four weeks of rising rates as the Lyxor Hedge Fund Index was up +0.2% from 19 September to 26 (+1.1% YTD), fuelled by strong results of global macro funds, Lyxor Ass

  5. Manager Profile - How the world's hedge fund king used 'idea meritocracy' to become a billionaire[more]

    From Forbes.com: In 1982, Ray Dalio made what he calls the biggest mistake of his life. He made a bet that there would be an economic collapse stemming from a debt crisis. And he was wrong. He lost money. He lost his client's money. He had to let people go from his firm and borrow money from his dad