Investment Operations

MANAGED ACCOUNTS ASSETS CLIMB TO $10.7 TRILLION

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Assets in managed accounts programs grew 23.8% in 2021, reaching a high of $10.7 trillion, according to Cerulli’s latest report, U.S. Managed Accounts 2022: The Future of Personalized Portfolios. 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.

A majority (56%) of managed account sponsors are prioritizing providing better portfolio construction resources to advisors. This 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,” according to Matt Belnap, associate director at Cerulli. “This has become an important selling point for sponsors, especially as advisor mobility becomes an increasing threat.”

At the same time, nearly all managed account sponsor firms plan to increase their direct indexing and separately managed accounts (SMA) customization capabilities. Within the direct indexing sphere, 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,” says Belnap. How direct indexing evolves beyond taxes will depend on which target market the sponsor firm intends to prioritize.

Sponsors also 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. Cerulli said it 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, 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 downmarket,” cautions Belnap. “The more mass market the offering becomes, the more operationally difficult personalization becomes, and the less customization the sponsor firm can effectively deliver. Yet, the affluent client segment, a sweet spot for direct indexing, still represents a substantial opportunity for sponsors and asset managers to address,” he concludes.