Managed accounts’ popularity continues to climb. Cerulli Associates reports that managed account asset programs grew 23.8% in 2021, reaching a high of $10.7 trillion.
“The Boston-based firm finds a majority (56%) of managed account sponsors prioritize providing better portfolio construction resources to advisors.”
“As sponsors evaluate drivers for long-term growth, they are prioritizing helping advisors manage portfolios more effectively and developing personalized investment solutions through direct indexing,” according to the report, U.S. Managed Accounts 2022: The Future of Personalized Portfolios.
The Boston-based firm finds that a majority (56%) of managed account sponsors prioritize providing better portfolio construction resources to advisors.
“As sponsors evaluate drivers for long-term growth, they are prioritizing helping advisors manage portfolios more effectively and developing personalized investment solutions through direct indexing,” according to the report, U.S. Managed Accounts 2022: The Future of Personalized Portfolios.
The Boston-based firm finds that a majority (56%) of managed account sponsors are prioritizing providing better portfolio construction resources to advisors.
It comes as securing consistent investment outcomes and scaling advisory practices have long been competing goals at sponsor firms.
“Sponsor firms realize that discretion is a powerful tool for advisors. Instead of trying to take it away from underperforming advisors, they are instead giving their advisors tools to be better portfolio managers,” Matt Belnap, Cerulli associate director, said in a statement. “This has become an important selling point for sponsors, especially as advisor mobility becomes an increasing threat.”
SMA and direct indexing
At the same time, nearly all managed account sponsor firms plan to increase their direct indexing and separately managed accounts (SMA) customization capabilities.
In direct indexing, sponsors are most interested in tax optimization (93%) and tax management (83%). “This makes intuitive sense; tax savings are a tangible story that advisors can explain to their clients to easily highlight the benefits of the product,” remarks Belnap. How direct indexing evolves beyond taxes will depend on which target market the sponsor firm intends to prioritize.
Cerulli also says sponsors realize the importance of personalization as they seek to attract the next generation of investors through environmental, social, and governance (ESG) investing. In four of five managed account program types, the share of ESG assets increased from 2021 to 2022.
The firm sees this as an indication that advisors and clients are showing an increased interest in ESG and that products on managed account platforms are proliferating to service this demand.
In an increasingly crowded wealth management space, with fee awareness growing and differentiators more difficult to identify, the firm concludes that sponsors need to offer advisors and investors flexibility and customization.
“Customization and personalization is a natural way for sponsors to add value. However, sponsors will need to weigh the benefits of traversing too far down market,” Belnap cautioned. “The more mass market the offering becomes, the more operationally difficult personalization becomes, and the less customization the sponsor firm can effectively deliver. Yet, a sweet spot for direct indexing, the affluent client segment still represents a substantial opportunity for sponsors and asset managers to address.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
