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Platform Consolidation Tops Managed Account Provider Focus

Platform consolidation has re-emerged as the top initiative for managed account providers, according to a new study by Cerulli Associates.

Cerulli’s “U.S. Managed Accounts 2017: Convergence and Its Implications” report found that more than half (59.6%) of those surveyed identified platform consolidation as their firm’s most important priority for 2017. While most firms expect to wrap up their consolidation within two years, more than a third acknowledge it may take longer. However, nearly one-quarter (24%) will continue to allow their products to exist on different platforms, according to Cerulli.

Providers are finding it difficult to reduce the total cost of ownership of a managed account by squeezing the price of the products offered through their platform. However, the report notes that with a greater use of institutional mutual fund share classes, very little remains in the expense ratio to squeeze, and that the lower-cost substitutes for mutual funds that firms promote, such as exchange-traded funds (ETFs) and model-delivered separately managed accounts (SMAs), already sell with “rock-bottom” fees. As a result, many providers are beginning to explore the possibility that pricing pressure will compress the fee for advice.

In fact, a significant majority (79%) of managed account providers surveyed by Cerulli believe that the advisory fee portion for a managed account will decrease over the next five years, and half of those agree this will be by 10%.

That Was Then

In 2016, managed account assets grew 13.0%, significantly stronger than the 3.4% growth rate the year before, while surging to nearly $4.7 trillion from $4.1 trillion the prior year.

Cerulli notes that managed account executives have been focused on concerns about:

  • how to respond to the rise of “robo” advisers; and

  • the changes required to conform to the DOL fiduciary rule.

Indeed, changing regulations — primarily the Labor Department’s fiduciary regulation — and the creation of a digital advice platform ranked No. 1 and No. 2 on the list of priorities of managed account providers, outpacing platform consolidation, which just a year ago was ranked third.