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How Managed Account Sponsors’ Priorities Are Shifting

Managed Accounts

Platform consolidation remains important for managed account sponsors, but a new report by Cerulli finds that sponsors are placing greater importance on several other objectives. 

In U.S. Managed Accounts 2021: The Evolution of Personalized Investing, Cerulli reports that increasing adoption of home-office solutions, helping advisors build better portfolios and responding to regulatory issues have jumped to the top of the list of sponsor priorities.

Cerulli found that home-office consulting groups are encouraging advisors to adopt models to create consistent investor outcomes. According to the firm’s research, 45% of managed account sponsors rate increasing adoption of home-office solutions as a top priority. “Forward-looking firms understand that financial planning is the most important service they can provide investors and that other aspects of investing, particularly portfolio construction, should be outsourced,” the report emphasizes.  

Additionally, nearly 4 in 10 firms (39%) rate providing better portfolio construction support for advisors as a top priority. “While they continue to encourage outsourcing, sponsors have made peace with the fact that some advisors will never want to surrender portfolio construction,” Cerulli notes. For these “hard-core, discretionary advisors,” firms are providing tools, analysis, and supporting personnel to help them become better portfolio managers, the report adds.   

Responding to regulations is also a concern, with 39% rating it one of their firm’s top initiatives. According to the report, the changing of administrations has many firms concerned that new fiduciary standards will be introduced that will require significant changes to their technology, policies and procedures.

Reducing the cost of client portfolios is also a focus of managed account distributors, with 37% indicating it is one of their top priorities. Cerulli observes that managed account sponsors continue to leverage their buying power to get the lowest price possible for asset management products.

Reframing Revenue Sharing

As the wealth management industry moves toward an increasingly fee-based model, managed account sponsors and asset managers apparently are looking to reframe revenue sharing and the economics of distribution. Cerulli’s report shows that only a quarter of asset managers are very willing to engage in revenue sharing, while a third are not willing to engage in revenue sharing regardless of the asset opportunity—a signal that the approach is undergoing fundamental change.  

The traditional basis point on sales arrangement—one of the most common revenue-sharing arrangements—is losing ground to alternative options. According to the report, more than 60% of managers believe that flat fees—payments between asset managers and program sponsors that are tied to specific, measurable metrics—are an attractive option for revenue sharing.

“These types of arrangements are perceived to be fairer by asset managers and they also hold up to the scrutiny of a fiduciary environment,” notes Matt Belnap, senior analyst at Cerulli. “If asset managers and sponsors are working toward a common goal, this type of arrangement not only fosters partnership, but also allays regulatory concerns on both sides.” 

In moving forward, asset managers apparently view home-office portfolio construction opportunities as the most valuable types of partnerships through revenue-sharing or partnership fees. Ranked as the most valuable opportunities among managers are:

  • to have products in home-office portfolios (83%);
  • to be in wrap programs (78%); and 
  • to be on select lists (70%).  

“If asset managers are going to pay, they want those dollars to buy as much influence as possible,” says Belnap.

In addition to fee arrangements, further scrutiny will be paid to conference sponsorship, according to Cerulli. While 74% of surveyed asset management executives say that conference sponsorships provide moderate value when considering revenue-sharing arrangements, a quarter of survey participants believe they provide no value at all, making these sponsorships the least valuable revenue-sharing component rated by asset managers. That said, the report suggests that conferences and meetings will remain important, and a good chunk of the industry will want to return to gathering with peers in person. 

Nevertheless, with few asset managers considering themselves “very willing” to enter into revenue-sharing agreements, regardless of AUM or marketing programs, managed account program sponsors should be prepared for a changing revenue-sharing environment, the report emphasizes. “Asset managers want partnerships and tangible benefits from payments. Pure AUM clout will not be enough to enter an agreement,” Belnap adds.