Mon, Feb 27, 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. Legal - Fannie, Freddie shares dive after U.S. appeals court ruling[more]

    From Reuters.com: Shares of Fannie Mae and Freddie Mac tumbled more than 30 percent on Tuesday after a U.S. appeals court shut down efforts by hedge funds and other investors to pursue numerous legal claims accusing the U.S. government of seizing their profits following taxpayer bailouts. By a

  2. Institutional investors plan to raise allocations to alternative assets in 2017[more]

    Komfie Manalo, Opalesque Asia: A survey by Context Summits Miami showed that nearly 72% of institutional investors and family offices plan to raise their allocations to alternative asset managers this year, suggesting continued strong demand for the industry. "As many large, brand name f

  3. Comment - Mortgages, mergers and hedge fund fees, Fairholme's Berkowitz responds to court ruling against hedge fund suits of Fannie Mae[more]

    Mortgages, mergers and hedge fund fees From Bloomberg.com: Yesterday the U.S. Court of Appeals for the D.C. Circuit handed down an odd decision in a lawsuit over the government's nationalization of Fannie Mae and Freddie Mac. The key issue is what's called the "Third Amendment," the 2012

  4. Investing - Hedge funds continue to chase the herd in record Momentum wager, Marshall Wace bets grocer Sainsbury may need rights offering, Hedge fund net exposure has started to retreat, David Tepper's Appaloosa fund makes a huge buy, The 10,000-mile journey to Short Australia, Skeptical hedge fund investors grill Evan Spiegel about Snap's I.P.O.[more]

    Hedge funds continue to chase the herd in record Momentum wager From Bloomberg.com: Hedge funds can't get enough of momentum - even if it means embracing an investing strategy they hate. Loosely defined as betting on shares that went up the fastest over the preceding nine-to-12 months, h

  5. Opalesque Exclusive: Swiss investors take fund seeding and acceleration into their own hands[more]

    Benedicte Gravrand, Opalesque Geneva: Banque Bonhote, a 200-year old Swiss private bank, last year launched a community of investors - heads of Swiss family and advisory offices and wealth managers - with the aim of co-investing in the kind of managers they wanted to invest in, either by way of s