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Portfolio > Asset Managers

Rep-as-Portfolio-Manager Programs’ Assets Surge

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Since the 2008 market collapse, big wirehouses and regional and independent broker-dealers have aggressively built rep-as-portfolio-manager platforms, according to a new report by Cerulli Associates.

These platforms consolidate multiple investment vehicles into a single account, thus streamlining the client experience and allowing the representative to generate simplified fee-based pricing.

Cerulli reported that RPM programs have enjoyed rapid growth, with net flows rising from $15 billion in 2008 to $92 billion in 2014.

“Since the 2008 market collapse, advisors who may have previously outsourced portfolio management to home-office consulting groups are reasserting control of client accounts, which permits them to more nimbly respond to their customers’ changing risk profiles in a volatile market,” Tom O’Shea, an associate director at Cerulli, said in a statement.

Some 67% of advisors surveyed by Cerulli cited “flexibility and control” as their chief reason for using RPM platforms.

And 59% of advisors planned to increase their use of managed account platforms that give them discretion of their clients’ allocation to mutual funds, exchange-traded funds and stocks.

O’Shea said asset managers were having to rethink their distribution strategies because of the changing landscape of investment discretion brought about by by the growth of RPM programs.

Money managers will have to focus on sophisticated decision-makers at individual advisory practices.

“Most BD firms offer their advisors two levels of discretion on an RPM platform: full and partial,” he said.

In a partial discretion RPM program, the BD allows the advisor to choose among different asset allocation strategies or products that the BD’s due diligence team approves.

An advisor with full discretion can construct portfolios and choose products that fall outside of the due diligence purview of the BD’s corporate registered investment advisor.

In a successful RPM team, each colleague focuses on his or her area of expertise, with the team gaining efficiency and competence, according to Cerulli.

“Discerning the type of RPM discretion an advisor exercises is critical to the wholesaler’s effectiveness in the field because it will point the salesperson toward the gatekeeper they need to influence,” O’Shea said.

According to Cerulli, asset management firms should help advisors understand how their products complement an advisor’s portfolio construction methodology.

Forty-three percent of firms said they had created programs to explain how their products function within an overall client portfolio.

Cerulli said advisors had graduated from selling products to building client solutions, and asset managers need to demonstrate what kind of building block their product is.

Does it, for example, aggressively seek alpha? Is it negatively correlated with other investments in the advisory group’s portfolios?


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