Wed, Feb 22, 2017
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Direct Firms are well-positioned for managed account distribution

Wednesday, March 07, 2012
Opalesque Industry Update:The discount channel, also known as the direct channel, accounts for 7.1% of the overall managed accounts industry, or $169 billion in assets in 4Q 2011. While still only a small portion of the managed account industry, the direct channel has been steadily gaining industry marketshare over the last 10 years, growing from 2.4% of industry assets in 2001 to 7.1% in 2011.

"Direct providers realized the need to develop greater guidance and advice services to capture a larger slice of their clients' long-term portfolios," said Katharine Wolf, associate director at Cerulli Associates. "As such, these providers began developing managed account programs that offer their clients on-going investment management for an asset-based fee and are engineered to appeal to advice-seeking clients."

With the development of managed account programs, direct firms no longer exclusively serve self-directed clients and are increasingly courting clients who want professional advice and guidance. In the past, investors may have looked outside of their direct providers for advice, but increasingly, direct providers are able to keep assets and clients on their platforms through their managed account offerings.

The largest direct providers, Fidelity and Schwab, have well-developed managed account programs, with $102 billion and $59 billion in managed account assets, respectively. Other providers, such as E*Trade, TD Ameritrade, and TIAA-CREF, are in the nascent stages of advice delivery, with less than $5 billion in managed account assets apiece.

Wolf contends that direct providers face two main challenges in growing their programs. First, they must retrain or hire representatives to position and service the programs. Second, those direct firms with a history of catering to active traders must reframe themselves as advice providers. Admittedly, direct firms still struggle to be viewed as advice providers and their managed account adoption rates range from less than 1% to around 13% of clients.

Direct firms have an advantage in positioning managed account programs, however, in that they have a wide base of clients from which to prospect: 67% of all investing households maintain a direct account. Therefore, even small increases in managed account adoption rates can lead to solid growth in the direct firm's managed account programs.

"In my view, direct firms have a number of tailwinds for their managed account programs," says Wolf. "Not the least of which is that their model allows them to profitably offer advice to clients at lower cost than many other advice providers."

Indeed Wolf estimates that the direct channel will grow to $4.9 trillion by year-end 2014, and managed accounts will make up an increased share of direct firms' assets, growing from 4% to 8% of assets over that timeframe and offering opportunity for asset managers distributing through direct managed account programs.

Additional findings from Cerulli's latest managed accounts research include:

  • While the four wirehouses remain the largest channel in terms of managed account assets, other distribution channels are steadily eroding wirehouse marketshare. Cerulli contends, however, that the considerable infrastructure supporting wirehouse managed account business ensures that these firms will maintain their place as the dominant channel in the space.
  • Regional B/Ds are poised to capture significant marketshare in the managed account space over the next two years. Asset managers have an opportunity to capitalize on this trend by dedicating resources to regional B/Ds with major growth potential even if their advisory assets are currently small.
  • IBDs hoping to attract new advisors to their firm need to make sure that they have a robust fee-based offering to solve for the varying needs of advisors.
  • Though client accounts at RIA practices have many of the same characteristics of managed accounts (fee pricing and asset allocation at the core), these advisors are not broad users of managed account programs.

Cerulli

Press Release

BM

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. People - Kuwait wealth fund head Al Saad said to step down after 14 years[more]

    From Bloomberg.com: Kuwait Investment Authority is set to name Farouk Bastaki as managing director, replacing Bader Al Saad who ran the world's fifth-largest sovereign wealth fund for 14 years, a person familiar with the matter said. The KIA, as the fund is known, is finalizing the appointment, said

  2. Manager Profile - Eddie Lampert: a painful entanglement with Sears[more]

    From Moneyweek.com: "In the long run we are all dead." Lex in the Financial Times reached for the famous quote from John Maynard Keynes in January when, after a long and unforgiving decline, the clock finally appeared to be running out on Sears, the iconic US department store group. Yet the group's

  3. Investing - Hedge funds quit Aberdeen shorts as shares begin to recover, Hedge funds' next big short: U.S. malls, O'Connor fund owns 9.5% of Protalix Biotherapeutics, U.S. hedge fund takes position in Macau hotel The 13[more]

    Hedge funds quit Aberdeen shorts as shares begin to recover From Investmentweek.co.uk: The last two hedge funds to short Aberdeen Asset Management have removed their positions, as the fund group's shares begin to show signs of recovery after a difficult few years. According to the Financ

  4. Latin America, high yields and Asia Pacific strategies dominate hedge fund returns in January[more]

    Komfie Manalo, Opalesque Asia: Latin America (+7.04%), high yield (5.63%), and Asia-Pacific (+5.06%) strategies dominated hedge fund performance in January, data provider Hennesee Fund Research said. The bottom three strategies for the mont

  5. Investing - Hedge funds loading up on this dividend stock, The biggest hedge funds have been piling into bank stocks[more]

    Hedge funds loading up on this dividend stock From Incomeinvestors.com: Hedge funds are backing up the truck on Cameco Corp stock. Billionaire Jim Simons owns 389,000 shares. Other Wall Street titans - including Ray Dalio, Ken Griffin, and Chuck Royce - have been quietly building positio