Separately managed accounts were dreamed up years ago at a wirehouse–E.F. Hutton–and to this day they remain a key weapon in the arsenal of the major brokerage firms, which still claim three-quarters of the $600 billion housed in the separate account biz. But independent advisors are finally beginning to climb on the separate account bandwagon as well. We talked recently with executives at Linsco/Private Ledger, the nation’s No. 1 independent broker/dealer, and Schwab Institutional, the leading custodial firm, to see how their separate account businesses are faring and what they have up their sleeves for advisors. Each firm reports rapid growth of assets in their respective programs and promises major improvements in the next few months.
LPL: Assets Double in a Year
LPL Manager Select offers the 1,000 advisors in the separate account program access to 150 styles from some 100 managers, including such well-respected names as AllianceBernstein, Brandes, Loomis Sayles, Nuveen, Thornburg, and Trillium, a specialist in socially responsible investments. With the list expanding steadily and LPL stepping up its efforts to help reps select managers, craft client proposals, and even outsource their asset allocation work, the bicoastal B/D, based in San Diego and Boston, reports its separate account business is growing like gangbusters. “In the past year, we’ve seen our separate account program double in size,” says Bill Morrissey, a Fidelity Investments veteran who in 2004 became San Diego-based senior VP for LPL Advisory Consulting Services.
While a small number of LPL reps use third-party separate account providers, the bulk of the $2.3 billion under Morrissey’s watch is housed in the firm’s in-house platform, Managed Account Select. But even with the past year’s growth spurt, managed accounts, not including mutual fund wrap programs, still account for about 2% of LPL’s more than $100 billion in client assets.
Morrissey said that on July 15, however, LPL will roll out Integrated Advisory Services, a unified managed account service that will permit advisors to compete with similar wirehouse offerings by mixing mutual funds, individual securities, and individual managers in a single account structure with one fee for everything. LPL will probably add exchange traded funds to the program before long, Morrissey says.
With a minimum account size of $250,000, versus $100,000 for the basic Manager Select product, Integrated Advisory Services will offer 32 asset allocation models, supervised by LPL’s registered investment advisor unit, and cost clients around 1.5% to 2% of assets annually, including all management and transaction charges, with a maximum charge of 2.5%, Morrissey says. That compares with an average charge of 1.8% in Manager Select, where the average account size is $267,000.
Integrated Advisory Services is the latest in a series of offerings at LPL aimed at taking some of the hassle out of working with separate accounts. For example, Manager Select Diversified Portfolios, which currently holds $275 million in assets, is one of two multimanager programs similar to the multistyle products used by wirehouses. The other, MIG, contains $74 million. Each has a $300,000 account minimum.
For advisors who want to pick their own managers, LPL offers a comprehensive research service run by in-house analysts who produce lists of approved and recommended firms. Recommended managers, notes Morrissey, must pass a more rigorous screening that looks at risk-adjusted performance, capture ratios, and management’s investment philosophy, among other things. LPL analysts in San Diego can walk advisors through the manager selection process, if they wish, or reps can do their own research via the firm’s Web-based tools. All the services are free.
LPL also offers Web-based training classes and conferences in the field for its reps. Among them are road shows where reps get to hobnob with asset managers as well as special managed account tracks in the three-day “Fast Forward” conferences LPL holds for reps in 12 cities.