In the separately managed account industry, major wire houses have long held the majority of the assets. And while this will likely continue to be the case in the near future, other channels have been steadily groping their way into the distribution of SMAs, Kevin Osborn said recently at The Money Management Institutes annual convention here.
The senior vice president and director of product distribution for Prudential Investments, Newark, N.J., moderated a panel of speakers from different channels who discussed their companies experience with getting into the distribution of SMAs.
Osborn described Prudential Investments sponsorship of a managed account program as, “a big leap to what we consider a third party in the managed account business.”
Osborn began the discussion with what advisors, whether they are independent or work through a bank or some other channel, should know before getting into distribution of SMAs.
First, he said, advice is “back in vogue. “I think the markets of the last two years have made it clear that (clients) want the help.”
Secondly, he listed four core steps the separately managed account world has long believed advisors should take in the process of identifying and achieving their clients investment objectives: investment policy development; the development of asset allocation; the search and selection of different investment advisors; and the monitoring of performance.
But, going forward into new markets, it should be clear to advisors that these four steps are only the essence of what they need to do. Because different distribution channels present different challenges, identifying and achieving need to be tweaked to fit the channel, Osborn said.
For instance, in the banking channel, many clients will have estate and trust needs that will play as big a role as investment policy development, he said.
Osborn then gave a sense of the advantages and disadvantages of getting into the SMA business as a money manager or sponsor.
A sponsor who wants to get into the SMA business must first decide whether it wants to enhance its existing platform, get a new platform or start from scratch, he said.
“Youve got a lot of challenges in front of you; quite frankly youre late to the game,” Osborn said. “That doesnt mean you cant play, just youre late and you have a scale issue. Its expensive and market conditions have been against us.”
To distribute SMAs, an organization must decide what it wants to accomplish and what its commercial viability is.
“Do you want this to be a stand-alone business or is it a subset with another type of business that you do,” Osborn said. “For example, you might be a bank or an insurance firm thats really more in the insurance or wealth management business and needs this as part of the process.
“That would start to dictate the economics and how much time and money you spend in the business,” he said.
A money manager who wants to participate in the SMA business has to think about the number of due diligence meetings he can go to and how many trading systems he can be on.
Adele Lennig, vice president, Managed Accounts, American Express Financial Advisors, Minneapolis, talked about the companys experience as an independent brokerage firm that built its own program, which it expects to launch in June.
AEFA bought a portfolio management system and plugged the platform into its brokerage system, Web environment and client management system, rather than outsource or use a third-party provider, Lennig said.
A separately managed account usually is not the first product an American Express Financial Advisors client is offered, she said. Its typically the fourth or fifth product, so it was important to the firm that it be able to integrate the new platform into its existing environment.
“So, in the end were able to offer a unified managed account program and be able to offer our clients separately managed accounts, mutual funds, and eventually by the end of the year, hedge funds for one wrap-fee,” Lennig said. “One statement, one online experience.”