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Part 4: Ranking the Managers

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Looking for separate account management alternatives? Prima Capital, which provides research, due diligence, and manager evaluations and rankings, is worth considering. The Web-based service is unlikely to get traction with small advisory practices because it’s pricey, but if you have $50 million or more in separate accounts or represent a B/D or consortium of advisors, the high quality of the due diligence and ongoing research could make a lot of sense.

J. Gib Watson III, the president and founder of Prima, started building the service in 1997 when he was at KPMG Peat Marwick, and it was initially intended for use by 400 KPMG consultants. In 1999, KPMG spun the product off to Watson after he raised a $1.5 million in capital. Watson later raised another $750,000 and now, he says, Prima is operating profitably, with a customer base comprising about 100 advisors and several institutions, including one of the nation’s top five banks, a large national accounting firm, and a few B/Ds, trust companies, and mid-sized investment firms.

Watson says there are about 5,000 products in the separate account manager universe. By screening them down to products managed by firms with demonstrated track records, the universe that would actually be considered by high-net-worth individuals is composed of about 500 products. For instance, for the Prima database to include a product, it likes to see its manager have at least $250 million under management and at least $50 million in the product.

Prima starts its screens with a large universe of managers similar to Mobius’s m-Search database, screens them for consistency of returns and style, and then its six analysts interview managers and read their marketing materials. Watson says Prima also finds new managers on its own by talking with clients and prospects. Style analysis, holdings-based analysis, and tax efficiency are among the 13 quantitative and qualitative factors evaluated. Managers input their holdings and returns into Prima’s online database, and a series of algorithms is used to convert that data into reports for analysts to use in making rankings and evaluations.

The product is not inexpensive. The entry level Base product, which contains mostly quantitative data and little qualitative information, costs $2,500 annually, while the Mid-Level product adds manager interviews, analysts’ opinions and commentary, as well as database search capabilities: it costs $7,000 annually. The Summit level, which adds Prima’s rankings and a more robust searching system, costs $12,000 a year.

Watson says that advisors who are managing substantial assets via a turnkey asset management provider may want to consider switching to his service. “If you are using a TAMP but conducting your own asset allocation studies for clients–and you are doing your own performance reporting on the separate account assets–you may have a need to differentiate yourself in the marketplace with respect to manager selection,” Watson says. “If you are simply unsatisfied with the typical wrap manager offerings in the TAMP and want to unbundled the service model, it could be more cost effective for you to outsource your due diligence to us.”