Advances in computer software are helping financial advisors to position separately managed accounts head-to-head with mutual funds for a share of the affluent investor market, concludes a new study from Financial Research Corporation, Boston.
“Advances in technology will expand the delivery of high-net-worth products to emerging affluent investors through open-architecture product platforms,” FRC says in its new study, The Future of the Mutual Fund Industry. “The result will be a dramatically altered landscape for the mutual fund industry over the next three to five years.”
The study concludes that separately managed accounts, registered hedge funds, exchange traded funds and other new product structures will capture a large share of mutual fund assets in the emerging open-architecture environment.
“We see a showdown as to what product is the best for that investor,” explains Charlie Bevis, editor in chief of research studies for FRC and author of its mutual fund study.
In the context of financial services, open architecture means that products normally seen as dissimilar will compete against one another based on value, says Bevis.
“Rather than seeing mutual funds competing only against other funds, we envision them competing against other financial products,” explains Bevis.
Among the current crop of alternative products, FRC sees separately managed accounts encroaching the most on mutual fund assets, due to their tax efficiency, customization potential and cachet–that is, the prestige of owning a product thats often associated with high social status.
FRC estimates the ratio of mutual fund assets to SMA assets fell from 15 to 1 at year-end 1996 to 10 to 1 at year-end 2001 and was nearing 9 to 1 at mid-year 2002.
“We forecast that this ratio between products will tighten even further to about 5 to 1 by 2005,” Bevis says.
SMAs are aimed at investors with six-figure investible assets, he notes.
Many SMAs have been adopting the multiple-discipline model originally developed by Citigroup, New York, he adds.