Are Managed Accounts Right for You?

It's nearly impossible to ignore the rallying call for managed accounts. Ninety percent of advisors netting $300,000 or more annually collect some fee revenue, and more than half of them garner at least 25 percent from fees, according to my 2000 survey. Is it time for you to get on board? To help you decide, consider what managed accounts can do for your practice: Give you more time Managed accounts

It's nearly impossible to ignore the rallying call for managed accounts. Ninety percent of advisors netting $300,000 or more annually collect some fee revenue, and more than half of them garner at least 25 percent from fees, according to my 2000 survey. Is it time for you to get on board?

To help you decide, consider what managed accounts can do for your practice:

  • Give you more time

    Managed accounts free you from managing your clients' investments. You gain time for yourself, your family and the rest of your business.

  • Attract and retain bigger clients

    Managed accounts provide both process and customization — exactly what high net worth individuals and institutions are demanding today.

  • Leverage your income

    Fees are based on the value of your clients' managed account portfolios every quarter. Assuming that over the long haul the capital markets perform as we expect them to, you'll get an annual lift in income with no extra effort.

Despite these advantages, the true fee-based consultant remains a rare bird in the advisor flock. At one firm, less than 2 percent of its reps are responsible for 80 percent of the managed account business. Nearly half handle no managed account business at all. What gives?

Chances are it's all about comfort; people generally are resistant to change. But in today's market, inertia isn't as powerful as it once was. I see more advisors taking the managed account plunge every day — and they're finding the water's not that cold.

Your chances of making the transition successfully depends on several factors: your suitability for this type of consulting, the clients and prospects you choose, and the ability to execute a well-conceived game plan.

Recipe for A Successful Transition

The biggest myth about transitioning to managed accounts is that you have to change yourself and the way you do business. Not true. Most top advisors were consultative to begin with. Managed accounts simply provided them a better product fit than stocks or mutual funds. The discipline of the managed account consulting process won't change you; it will make you more consistent.

So do you have what it takes? The most successful consultants exhibit these traits:

  • They love to sell — not manage — portfolios. They don't have “control” issues.

  • They are comfortable around affluent people and not intimidated by wealth.

  • They work closely with other advice experts, such as CPAs and attorneys.

  • They sell in a consultative way, considering client needs over product features.

  • They have patience and a willingness to forego commissions today for a stream of ongoing fees.

Next, look at your book for prospects. Look for upgrade opportunities — clients with many assets that can be managed better. A perfect prospect owns many mutual funds and securities but lacks a detailed game plan. To these folks you can provide the discipline of an investment policy statement and an asset allocation plan. For clients disappointed by a disjointed portfolio, a managed account represents an upgrade to a higher level of service, and who doesn't want that?

Reel in those clients who have significant assets that aren't with you. Entice them with the prospect of combining accounts into a single, more manageable, strategy under a comprehensive investment policy. The simplicity of one account is a real benefit for most.

Rescue the bruised and battered. Many top advisors say it is now easier to discuss consolidation with prospects because dissatisfaction with their current advisors is so high. If you have a plan for their assets, you will be more credible than the incumbent advisor without one.

When the prospecting phase is complete, create a business plan, using your desired income stream as a starting point. Say you want to earn $100,000 from your managed account business. What activities will drive that income? Industry studies set the average managed account value at $250,000. So, how many $250,000 accounts will it take in order to meet your annual income goal? Determine what fees you can charge and what your net payout will be.

Next, focus on landing the accounts. If your goal is 10 clients at a minimum of $500,000 each, that will take you to $5 million. If you capture 20 more clients at $250,000 each, that's another $5 million. Be specific in your goals. Reduce the big-picture sales goals to daily activities. How many prospects must you source to end up with a close?

Break down the business plan into clients and numeric terms. For example, create an inventory of clients who maintain significant assets elsewhere. By upgrading your services with managed accounts, you have the potential to earn more assets from existing clients. Make an educated guess about who and how much you could capture.

Now plot an attack tailored to each client's needs, keeping in mind that the managed account is a conceptual sale. Unlike a new issue or single product offering, there's no time urgency. And since the sales process can take months or even years, you will be managing multiple sales at the same time.

A New View of You

Making a successful transition to managed accounts ultimately hinges on altering your clients' perception of your expertise. Start by introducing them to the benefits of a customized account. When you explain your process and strategy for managing their total portfolio, you'll be on the path to capturing more assets. And don't fear clients who ask why you didn't share this information with you before. After 34 months of a bear market, everyone is looking for a better strategy. Focus forward — your client is ready to transition too.

Writer's BIO:
Steve Gresham
is executive vice president, chief sales and marketing officer for the private client group of Phoenix Investment Partners, Ltd. He is the author of The Managed Account Handbook: How to Build Your Financial Advisory Practice Using Separately Managed Accounts. Contact him at [email protected]

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