If your game is separately managed accounts, and you have been frustrated by the complexity of managing client assets across several managers, you might be happy to know that multi-manager products are gaining wide acceptance by customers. Using a fund-of-funds approach, these multi-style accounts let advisors invest in a single account that embodies several different investment styles.
For now, Smith Barney, which has been a pioneer in the market, dominates sales of these multi-manager products. However, other brokerages are trying to catch up. Smith Barney, which has 90 percent of the market for multiple-style accounts, according to Cerulli Associates, is seeing 70 percent of its new asset management business flow into multi-style accounts, says Roger Paradiso, managing director at Citigroup Asset Management. Currently, Smith Barney reps can only access the multi-discipline accounts run by a group of in-house managers, but eventually, perhaps, outside managers will be available in the program. Paradiso says the limits are justified, for now.
“It takes a long time to get to know those managers,” says Paradiso, noting the variety of asset management platforms within Citi, including E.F. Hutton and Travelers. Right now, he says, it's easier to manage the in-house managers. “You have the flexibility on the proprietary side to get everyone in a room and say, ‘Okay, what are we doing here?’” he says.
As of the fourth quarter of 2002, Smith Barney had $17 billion in multi-discipline accounts — which is only about 2 percent of the entire separately managed account universe: $721 billion, according to Cerulli.
Citigroup Asset Management also acts as a so-called “overlay” manager — where a money manager combines models provided from a group of disparate managers and manages the money for tax efficiency and wash-sale coordination — similar to independent firms such as Placemark and Oberon Technology.
“A fairly significant percentage of the wirehouses' money is heading in that direction,” says Scott MacKillop, principal at Trivium Consulting, a managed accounts consultant in Denver. “The percentage is not quite so large outside of the wirehouse world because there's less product there today.”
Representatives from the firms, as well as outside consultants, say much of the new assets are heading towards these types of accounts.
Citi is not alone in its embrace of multi-style. Burt White, director of research at Wachovia Securities says, “In 12 weeks, 45 percent of new assets are going into the DMA,” or diversified managed allocation, the firm's multi-style offering. Speaking at last month's Money Management Institute conference, he added that this percentage represents a run-rate of about $800 million annualized.
Wachovia's offering allows reps to pick from many management companies, with Wachovia providing the overlay.
Morgan Stanley officials say they have seen significant growth in assets in multi-style offerings, although it is not dominating their business yet. Merrill Lynch, which leads in terms of total managed account assets with $176 billion, according to Cerulli, would not release figures on the kind of growth it has seen in its multi-style products.