Wed, Jun 29, 2016
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. Blackstone buys minority stake in New York-based credit hedge fund Marathon[more]

    Benedicte Gravrand, Opalesque Geneva: Blackstone Strategic Capital Holdings Fund, a vehicle managed by Blackstone Alternative Asset Management (BAAM), has acquired a passive, minority interest in Marathon Asset Management, for an undisclosed sum. Based in New York,

  2. Investing - Soros, Druckenmiller among hedgies profiting in market plunge, Hedge funds were most bullish on bonds since 2004 before Brexit, Surprise Brexit vote unleashes scramble for dollars, High-yield hit on Brexit but no panic selling, Scientist turned hedge fund founder lured to pound, euro, Hedge fund avoids commodities, posts big gains[more]

    Soros, Druckenmiller among hedgies profiting in market plunge From HITC.com: Bullish positions in gold and volatility and well-timed short bets on China and emerging markets, among other areas, were some of the trades that benefited hedge funds on Friday as markets digested Britons' s

  3. Manager Profile - A 26-year old hedge fund manager called Brexit — here's what he thinks about the historic vote[more]

    From Businessinsider.com: Taylor Mann is not your typical fund manager. The twenty-six year old Texas A&M graduate manages Pine Capital in Larue, Texas (population 160), where he resides with his three-year old daughter. Also atypical compared with many of the largest funds out there, Mann makes

  4. Visium hedge fund manager Sanjay Valvani found dead[more]

    Benedicte Gravrand, Opalesque London: A hedge fund manager connected with an insider trading case has apparently committed suicide. Sanjay Valvani, 44, a hedge fund manager at New York-based Visium Asset Management, was found dead in an apparent suicide on 21 June in his Brooklyn residence,

  5. People - Mariner Investment’s co-CIO Williams to leave $5.5bn firm, IOOF hires new alternatives portfolio manager[more]

    Mariner Investment’s co-CIO Williams to leave $5.5bn firm From Bloomberg.com: Basil Williams, co-chief investment officer of Mariner Investment Group, is leaving the $5.5 billion hedge-fund firm after negotiations to renew his contract failed. Williams will stay in his role until t