Tue, Jan 24, 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. Investing - This hedge fund made 37% betting on banks in 2016 and remains bullish after the Trump rally, Hedge fund legend David Einhorn is making a big bet on GM, After impressive 85% return in 2016, hedge fund looks to Canadian gold producer, small banks[more]

    This hedge fund made 37% betting on banks in 2016 and remains bullish after the Trump rally From Forbes.com: Can bank stocks continue to rise after a 28% surge in the KBW Bank Index in 2016, fueled by a post-election rally as stock pickers returned to the beaten down sector? Forget the s

  2. SWFs - China sovereign wealth fund CIC plans more U.S. investments[more]

    From Reuters.com: China Investment Corporation (CIC), the country's sovereign wealth fund, is looking to raise alternative investments in the United States due to low returns in public markets, its chairman said on Monday. CIC will boost its investments in private equity and hedge funds as wel

  3. Some hedge funds strong start in 2017 nice contrast to 2016[more]

    With the 2016 HSBC Hedge Weekly performance rankings in the books - a year in which the same leader-board entries pretty much dominated unchallenged throughout the year - comes a new leader board that is a hard-scrabble mix of hedge fund styles and categories. What is clear after but a few short wee

  4. Macro hedge funds and CTAs outperform in December on strong dollar[more]

    Komfie Manalo, Opalesque Asia: The last month of 2016 saw risk assets climbing higher, as part of expectations that the new U.S. administration will remove barriers to growth and investment, Lyxor Asset Management said. December also saw the Fed hik

  5. Opalesque Exclusive: Roxbury credit events UCITS gathers more assets[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: The Roxbury Credit Events Fund, launched in September 2015, was up 4.24% in 2016, having returned seven positive months during the year. The managers raised