Top producers say managed accounts can play an important role in clients investment strategies.
Even so, at least one major financial advisor offers a caveat: if financial markets are in the doldrums, a managed account can be “a double-edged sword.”
Managed accounts are programs in which client money is invested in accounts managed by institutional money managers or in a wide range of mutual funds.
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During the first half of 2001, managed accounts grew slightly, according to a survey conducted by Cerulli Associates, Boston.
Data tracked by Cerulli indicated that assets grew 0.62% to $727.8 billion in the first half of 2001, compared to $723.3 billion during the same 2000 time frame. Growth over first quarter asset totals of $668.6 billion was 8.85%.
Managed accounts will continue to experience growth as Americans start saving more, says Ed Morrow, CEO of Financial Planning Consultants in Middletown, Ohio, and president of the division of financial advisors of the National Association of Insurance and Financial Advisors, Falls Church, Va.
Managed accounts “align the consumers long-term goals with the advisors goal for a steady income,” he says.
The advisor is helping the client by “staying the course,” Morrow says, noting that one value an advisor brings is a knowledge of funds and what funds within a managed account are staying true to their stated purposes. Morrow counts more than 750 investment decisions that a client needs to make and that an advisor charging a flat fee can provide.
Managed accounts are a “double-edged sword,” says Rick Patterson, a principal with Associated Planners Group in Madeira Beach, Fla., who is also a member of the Million Dollar Roundtable and a NAIFA trustee.
In a bull market, managed accounts can be a profitable way for an advisor to grow a practice by charging a fee of three-quarters of a percent, he says.
But, Patterson adds, “if, in a bear market or recession, you are still taking 75 basis points and losing 30%-40% of an accounts assets,” then clients are going to begin saying something.
“In the late 1990s and into 2000, everyone was jumping on the bandwagon,” says Patterson.
However, given current market conditions, some clients are jumping off the bandwagon. Patterson says that he knows of one firm that lost eight major accounts.
A producer who can demonstrate added value will be in a better position in this kind of environment, he continues. Knowledge of the clients other investments, risk tolerance, job position, age and responsibilities gives the producer a better idea of what investments should be included in the managed account, he says.
But there could be some shakeout for those advisors who focused their efforts totally on money management, according to Patterson.
There are two reasons he cites: you need to explain to a client why there is a significant drop in an account; and your fee is diminished because it is a percentage of a smaller total amount.