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In Managed Accounts, Packaged Portfolios Beat Advisor-Driven Ones: Cerulli

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Over the past five years, packaged portfolios, managed accounts that are put together by broker-dealer home offices, have performed better than advisor-driven or open portfolios, according to new research from Cerulli Associates.

The report, “Managed Accounts 2015: Battle for Discretion,” posits that’s because the accounts stay invested in the markets through pullbacks and recoveries.

“The home office is more removed from the daily concerns of clients, and as a result can maintain the resolve to stay invested while advisors feel pressure from their clients, and themselves, to act to avoid short-term losses,” Frederick Pickering, a research analyst at Cerulli, said in a statement.

Packaged portfolios outperformed advisor-driven portfolios by 3.15 percentage points over the five-year period ending in 2014, and outperformed hybrid portfolios by 2.96 points. The report acknowledged that those numbers might look insignificant, but ”if the outperformance is projected onto the AUM of an advisor’s entire practice, it can amount to hundreds of thousands of dollars of ‘lost’ production revenues.”

“We believe the outperformance is primarily driven by qualified home-office teams dedicating their time to asset allocation, manager selection, and staying invested in the market during downturns,” he added. “Home-office teams are more quantitative in their approach to manager selection and are not as swayed by qualitative factors such as fund company’s reputation or wholesaler relationships.”

However, plan sponsors and asset managers surveyed by Cerulli agreed that advisors gravitate toward the rep-as-portfolio-manager (RPM) model because it gives them more flexibility and control over the portfolio, so they can respond to changes in the clients’ risk tolerances over time — which is precisely why Cerulli suggests those portfolios don’t perform as well as other managed accounts.

Cerulli believes the managed account market is reaching maturity. In 2014, mutual fund advisory and RPM programs “were not able to recreate the growth seen between 2012 and 2013, when each platform increased flows in excess of 30%.” Those channels are the largest in the industry, though, and they represented 60% of all managed account net additions, Cerulli said, more than $200 billion.

“While it is encouraging for sponsors that these platforms were able to add such substantial assets, it is at the same time a bit disconcerting that neither was able to maintain its previous growth momentum,” according to the report.

Unified managed accounts overtook rep-as-advisor platforms for the first time, bringing in almost $48 billion, compared with just over $46 billion. Cerulli theorized that the switch “exemplifies the adoption of best practices within the industry, as advisors have gradually begun turning toward the product flexibility and sponsor discretion that are customary within UMA programs.”

— Check out Can Anyone Make Your Retirement Money Last for Life? on ThinkAdvisor.


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