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Plan Sponsors Seek to Consolidate Platforms, Streamline Advisor Experience

Client Services

Closely correlated in the minds of plan sponsors, consolidating platforms and streamlining the advisor experience once again rank as the highest priorities, according to a new report by Cerulli Associates.  

In fact, 90% of managed account sponsors surveyed identified simplifying and streamlining the advisor experience as their firm’s most important priority for 2019. This was followed by platform consolidation (38%), providing better portfolio support for advisors (38%), expanding the use of third-party models (29%) and increasing the use of home-office discretionary products.  

To many executives at plan sponsors, one of the main goals of platform consolidation is to make an advisor more productive by reducing friction associated with different platforms, multiple investment agreements, inconsistent pricing and disparate office procedures, Cerulli notes in its report, “U.S. Managed Accounts 2019: The Challenge of New Platforms.” 

Additionally, constructing and monitoring client accounts through one portal gives an advisor a holistic view of all a client’s accounts, thereby facilitating a comprehensive financial planning process, Cerulli observes.   

Consequently, most managed account sponsors are moving toward consolidating all of their managed account programs onto a unified advisory platform, with 14% of executives surveyed indicating they have completed consolidation, 57% indicating they plan on consolidating, and 5% indicating they are relying on their turnkey asset management provider to do so. 

Some firms may resist consolidation, however. The firm notes that nearly a quarter of firms (24%) will continue to allow programs to exist on different platforms – a model that may soon be challenged by competitors that have fully embraced consolidation.

Long-term Process

For those looking to consolidate platforms, Cerulli emphasizes that planning and implementing is a long-term process. Two-thirds (67%) of managed account sponsors developing a unified advisory platform estimate that it will take longer than two years to complete the consolidation, according to the report. 

“The purpose of consolidation is to simplify and enhance the experience of an advisor, which involves not only improving technology, but also streamlining all the interactions between the advisor, the client and the firm,” notes Tom O’Shea, director of the managed accounts practice at Cerulli. It also requires a firm to reset pricing, change investment contracts and disclosure documents, update policies and procedures, and redesign middle-office and back-office operations, O’Shea further explains.   

Yet, while consolidated platforms simplify many activities for the financial advisor, they can introduce some complexity into the overall compliance regime of the firm, the report further warns. For example, consolidation mixes fee-based, SEC-regulated accounts with commission-based, FINRA-regulated accounts within a single ecosystem, the report explains. What’s more, Cerulli notes that this mixing is exacerbated by the new view of suitability that unified platforms impose on advice delivered to the client. 

“In the past, regulators were comfortable with scrutinizing suitability at the account level, and they are only just now catching up with the industry’s evolution toward determining suitability at the level of the client or the client’s unique financial goals,” the report states. 

Managed Account Market

While total managed account assets rose only 1.1% in 2018 to more than $6 trillion while net flows dropped from a record $604.5 billion in 2017 to $475.3 billion – the last quarter of 2018 notwithstanding – managed accounts benefit from several trends that should propel their growth over the next several years, the report suggests.  

“There is a growing desire among investors and advisors to engage in fee-based, fiduciary relationships, and an increasing demand for unbiased advice among investors as they navigate the difficult challenges of paying off student loans, funding college for their children, supporting elderly parents, saving for retirement, and determining how to spend down assets after retirement,” the report states. As such, Cerulli anticipates the managed accounts space will grow to more than $10 trillion by 2022.

In addition, concurrent with these growing investor preferences, advisors are embracing the fiduciary model, according to the report. Cerulli notes that, even though the Labor Department’s conflict of interest rule was vacated in 2018, it has “caused the industry to redesign their advisory platforms to support and encourage fee-based advice.” As a result, “total fiduciary assets are growing at an increasingly rapid pace and have outpaced the growth of traditional relationships in every individual channel during the past decade,” the firm observes.