Paul Fullerton MMI 1030 4-21.ppt

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Paul Fullerton MMI 1030 4-21.ppt

  1. 1. Business Challenges for the Managed Accounts Industry MMI Annual Convention Boston, MA April 20-21, 2004
  2. 2. Agenda <ul><li>Program Sponsors </li></ul><ul><li>Asset Managers </li></ul><ul><li>Vendors </li></ul>
  3. 3. Cerulli Associates Managed Accounts Research <ul><li>Decade-long pioneering coverage and analysis </li></ul><ul><li>Proprietary database tracking key attributes from more than 300 asset managers and sponsor programs </li></ul><ul><li>Completion of more than 200 in-depth interviews with senior management annually </li></ul>
  4. 4. Program Sponsors Rejuvenated Focus
  5. 5. Advice Delivery: Rejuvenated Focus on Core Attributes <ul><li>Client Profiling </li></ul><ul><ul><li>Advisors working with clients to develop an understanding of their assets, liabilities, risk tolerance, and financial goals </li></ul></ul><ul><li>Asset Allocation </li></ul><ul><ul><li>Viable asset diversification model, and the specific model applied to each client is determined in the profiling process </li></ul></ul><ul><li>Ongoing Monitoring </li></ul><ul><ul><li>Advisors conduct regular face-to-face client visits, and make portfolio adjustments in adherence to investment plan </li></ul></ul><ul><li>Consolidated Statements </li></ul><ul><ul><li>Statements detailing account activity, including a client’s relationship with multiple managers and products </li></ul></ul><ul><li>Identifiable, Asset-Based Fee </li></ul><ul><ul><li>The fee paid by the client must be discrete and identifiable </li></ul></ul>Attributes Make Managed Accounts a Systematic Investment Service Source: Cerulli Associates
  6. 6. The Unified Managed Account (UMA) Is the Platform Source: Cerulli Associates UNIFIED MANAGED ACCOUNT Client Profiling Asset Allocation Performance Reporting Client Reports Financial Consultant Investor Core Account RPM Hedge Funds Mutual Funds ETFs Indiv. Styles
  7. 7. Specific Program Issues and Concerns <ul><li>Separate Account Consultant Programs </li></ul><ul><ul><li>Fee disclosure (financial advisors and end-clients), directed brokerage </li></ul></ul><ul><li>Mutual Fund Advisory Programs </li></ul><ul><ul><li>Pricing an issue with advisory overlay (2.46% total client fee after exp. ratio) </li></ul></ul><ul><li>Rep-as-Portfolio Manager Programs </li></ul><ul><ul><li>Mixed bag, portfolio management systems, sponsors increasing monitoring capabilities </li></ul></ul><ul><li>Fee-based Brokerage Programs </li></ul><ul><ul><li>Advisory or nonadvisory; a nondiscretionary advisory feature would allow firms to combine other advisory programs into a single delivery environment </li></ul></ul>Source: Cerulli Associates
  8. 8. Multiproduct Delivery in Managed Accounts Mutual Funds Separate Accounts Individual Securities, ETFs Advisor Client FUTURE MODEL CURRENT MODEL Source: Cerulli Associates BEFORE UMA UMA Mutual Funds Separate Accounts Individual Securities, ETFs Mutual Funds Advisory Program Contract Statement Fees Profile Separate Account Consultant Program Contract Statement Fees Profile Fee-Based Brokerage Contract Statement Fees Profile Unified Managed Account Contract Statement Fees Profile
  9. 9. UMA Ramifications: Come Together <ul><li>Business Unit Head </li></ul><ul><li>Due Diligence </li></ul><ul><li>Operations </li></ul><ul><li>Sales & Marketing </li></ul><ul><li>Broker Workstations </li></ul><ul><li>Accounting </li></ul><ul><li>Compliance </li></ul><ul><li>Web </li></ul><ul><li>Advisor Compensation </li></ul><ul><li>Product Pricing Transparency </li></ul><ul><li>Partner Firm Revenue Sharing </li></ul>Source: Cerulli Associates Economic Policy Changes Operations & Technology Organization Managed Account Group (MAG)
  10. 10. Managed Account Groups (MAGs) Continue to Grow in Importance, but Challenges Persist <ul><li>Operations and Technology </li></ul><ul><ul><li>Connecting the plumbing for the UMA; Drive efficiency </li></ul></ul><ul><li>Asset Manager Due Diligence </li></ul><ul><ul><li>Integration issues with multiple groups combining (mutual funds and separate accounts); Broaden universe to include alternative investments? </li></ul></ul><ul><ul><li>Evolving role of product development; UMA Portfolio Strategist, Overlay portfolio management, MSAs </li></ul></ul><ul><li>Platform Support (Sales, Marketing, Service) </li></ul><ul><ul><li>Training, training, training; Harvesting the next generation of managed accounts financial advisors </li></ul></ul><ul><ul><li>Delivering a consistent and unified managed accounts message </li></ul></ul>Source: Cerulli Associates
  11. 11. Platform Support Is Crucial: Spotlight on Sales & Marketing Sponsor Managed Account Group (MAG) Division of Labor Source: Cerulli Associates
  12. 12. Tier 1 Advisors Account for Bulk of Historical B/D Managed Account Business But…New Compensation Structures Poised to Increase Future Contribution of Tier 2 and Tier 3 Advisors 70%+ fee-based 20-70% fee-based < 20% fee-based Source: Cerulli Associates
  13. 13. Supporting the Platform Is Key to Advisor Retention Source: Cerulli Associates Lack of fee-based platform support is the most prevalent reason cited by FAs for leaving their firm Major Factor Somewhat Important Not an Issue
  14. 14. New Channel: Private Client Groups (PCGs) Defined Private Banks Private Client Asset Managers Private Client Brokerages Private Client Wealth Advisors Source: Cerulli Associates <ul><li>Individual investor focus, but not large B/D </li></ul><ul><li>Proprietary asset mgmt. (y/n) </li></ul><ul><li>Legacy services: banking, brokerage, asset mgmt. </li></ul>Decision Points CA’s PCG Segmentation Methodology
  15. 15. PCG Asset Management Delivery Models <ul><li>FIRM TYPES </li></ul><ul><li>Private Banks </li></ul><ul><li>Private Client Asset Mgrs </li></ul><ul><li>Private Client Brokerages </li></ul>100% Proprietary Asset Management <ul><li>FIRM TYPES </li></ul><ul><li>Private Banks </li></ul><ul><li>Private Client Asset Mgrs </li></ul><ul><li>Private Client Brokerages </li></ul>Access to 3 rd Party Asset Management <ul><li>FIRM TYPES </li></ul><ul><li>Private Client Wealth Advisors </li></ul>100% 3 rd Party Asset Management Closed Architecture Hybrid Architecture Open Architecture << Open Closed >> Examples: Northern Trust, Bel Air Inv. Advisors, Garrett Nagle Examples: Goldman Sachs, Atlantic Trust, BofA, Bingham Legg Examples: Ashbridge, Tanager, Greycourt, InTrust Advisors Source: Cerulli Associates Asset Management Architecture
  16. 16. Centralized Platform: MAGs Will Increasingly Be Leveraged Across Global Affiliates Managed Account Group Platform Investment Product Platform Product Development Money Manager Due Diligence Marketing & Sales Support Equity Research (In-house & Third-Party) Source: Cerulli Associates Wirehouse Bank Brokerage Private Bank Global
  17. 17. Asset Managers Converging Marketplaces
  18. 18. What’s Helping/Hurting/Complicating Tailwinds Headwinds Turbulence <ul><li>Demographics </li></ul><ul><li>Innovation </li></ul><ul><li>Strategic Alliances </li></ul><ul><li>Globalization </li></ul><ul><li>Tax and Regulation </li></ul><ul><li>Capital Markets </li></ul><ul><li>Scandal </li></ul><ul><li>Innovation </li></ul><ul><li>Fee-based Transition </li></ul><ul><li>Complexity </li></ul><ul><li>M&A </li></ul><ul><li>Outsourcing </li></ul><ul><li>Distribution </li></ul><ul><li>Globalization </li></ul><ul><li>Competition </li></ul><ul><li>Maturation/Saturation </li></ul><ul><li>Profit Pressure </li></ul><ul><li>Regulation </li></ul><ul><li>Risk </li></ul><ul><li>Asset Retention </li></ul><ul><li>Velocity of Assets </li></ul>
  19. 19. Profit Margins Converging Pretax Profit Margins Sources: Company Reports, Cerulli Associates
  20. 20. Operationally Inefficient Marketplace Source: Cerulli Associates Asset Managers Program Sponsors Logon Logon Logon Logon Portfolio Manager Model A Model B Model D Program #1 Program #2 Program #3 Program #4 Program #5 Program #6 Program #7 Program #8 Operations Team Model C I N T E R F A C E
  21. 21. Annual Redemption Rate Data for Separate Accounts Is Marginally Better than Mutual Funds Sources: ICI, Cerulli Associates Combined $85 Billion of Net Cash Flows for 2002 & 2003
  22. 22. Manager Decisions in UMA World <ul><li>Product </li></ul><ul><ul><li>Building and leveraging appropriate product lineup </li></ul></ul><ul><ul><ul><li>Mutual funds, Separate accounts, ETFs, Hedge funds, etc. </li></ul></ul></ul><ul><li>Salesforce </li></ul><ul><ul><li>Effective organization and compensation structures </li></ul></ul><ul><ul><ul><li>Multi-product? (dedicated, hybrid, universal), Trails vs. commissions, Geographic vs. channel vs. demographic </li></ul></ul></ul><ul><li>Distribution Relationships </li></ul><ul><ul><li>Developing and maintaining profitable relationships </li></ul></ul><ul><ul><ul><li>Number, Asset quality, Marketing and servicing support, Operations and technology </li></ul></ul></ul>Source: Cerulli Associates
  23. 23. Vendors Leveling the Playing Field
  24. 24. Vendors Vertical Platform Providers vs. Specialist Providers? Source: Cerulli Associates Outsource Providers <ul><li>Mellon </li></ul><ul><li>State Street </li></ul><ul><li>BoNY </li></ul><ul><li>PFPC </li></ul><ul><li>SEI </li></ul><ul><li>JP Morgan </li></ul><ul><li>Bisys </li></ul><ul><li>Hyland Software </li></ul><ul><li>BTA </li></ul><ul><li>Imaging Solutions </li></ul><ul><li>LifeHarbor </li></ul><ul><li>SoftPak </li></ul><ul><li>IAN </li></ul><ul><li>Statement One </li></ul>Workflow / Efficiency <ul><li>Citigroup </li></ul><ul><li>Parametric </li></ul><ul><li>Placemark </li></ul><ul><li>Tamarac </li></ul><ul><li>Smartleaf </li></ul><ul><li>Upstream </li></ul>Overlay Management Portfolio Accounting/Mgt <ul><li>Checkfree APL </li></ul><ul><li>SunGuard </li></ul><ul><li>FMC </li></ul><ul><li>IDS </li></ul><ul><li>Metavante </li></ul><ul><li>Portia </li></ul><ul><li>Advent </li></ul><ul><li>DST </li></ul><ul><li>FIN </li></ul><ul><li>Vestmark </li></ul><ul><li>Market Street </li></ul>
  25. 25. Service Providers and Managed Accounts <ul><li>Broker/Dealers </li></ul><ul><ul><li>Broadening of managed accounts </li></ul></ul><ul><ul><li>The advent of the Unified Managed Account platform </li></ul></ul><ul><ul><li>New face of correspondent clearing </li></ul></ul><ul><li>Asset Managers </li></ul><ul><ul><li>Lowering operational costs (back-office functions, workflow, etc.) </li></ul></ul><ul><ul><li>Enabling new products (MSAs, Overlay Management) </li></ul></ul><ul><ul><li>Connecting the dots of distribution through platforms </li></ul></ul>Source: Cerulli Associates
  26. 26. Mutual Fund-Like Industry “Plumbing” for Separate Accounts? Program #1 Program #2 Program #3 Program #4 Program #5 DTCC/ Industry- wide Solution Source: Cerulli Associates Mgr #1 Mgr #2 Mgr #3 Asset Managers Program Sponsors PM Model A Model B Ops Team PM Model A Model B Ops Team PM Model A Model B Ops Team
  27. 27. Third-Party Vendors: Consolidation to Continue Source: Cerulli Associates GE Investments SunGard PFPC PMC Bank of New York Acquirer Centurion London Pacific Advisors AdvisorPort Envestnet Lockwood Target AssetMark Oberon Financial FundQuest Meridian Investment Net Asset Management Brinker Independent Third-Party Vendors
  28. 28. Enter Stage Left: Clearing Firms Impacting TPV Marketplace Service Agency Captive Salesforce Broker/Dealer Correspondence Clearing Platform Source: Cerulli Associates Centralized Platform: Retail-Focused Clearing Outlets
  29. 29. Platform Spectrum: Unbundling Functions Execution Platform Technology Manager Research Platform Support Sponsor <ul><li>Advisors </li></ul><ul><li>Sales & Mkt </li></ul><ul><li>Training </li></ul><ul><li>Due Diligence </li></ul><ul><li>Monitoring </li></ul><ul><li>Product Creation </li></ul><ul><li>Port Acct. </li></ul><ul><li>Workstation </li></ul><ul><li>Profiling </li></ul><ul><li>Billing </li></ul><ul><li>Clearing </li></ul><ul><li>Custody </li></ul><ul><li>TA </li></ul>End-to-End Solution Source: Cerulli Associates
  30. 30. Concluding Thoughts <ul><li>The increasing importance of advice in retail distribution is broadening Managed Accounts to new outlets and deepening advisor penetration. </li></ul><ul><ul><li>Fee-based drivers, Platform access, Simplicity, Advice </li></ul></ul><ul><li>The Unified Managed Account (UMA) is the platform that simplifies and integrates. </li></ul><ul><ul><li>Single port of entry, Increased fee-based business, Product neutral </li></ul></ul><ul><li>Asset manager salesforce and operational decisions can drive efficiencies. Managers need to look for organizational leverage points. </li></ul><ul><ul><li>Corporate structure, Product line legacy, UMA implications </li></ul></ul>Source: Cerulli Associates
  31. 31. Further Information Paul A. Fullerton Associate Director 617.437.1098 X118 [email_address] Jack Rabun Senior Analyst 617.437.1098 X148 [email_address] Cerulli Associates 575 Boylston Street Boston, MA 02116 www.cerulli.com
  32. 32. Appendix

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