What's the Redemption Rate on Managed Accounts?

Even though industry data does not track redemption rates of managed accounts, industry sources say the number is about 15% less than mutual funds. There's no industry statistics to draw from, so I can only go by what I observe from our firm, and our [redemption] rate is about 15% approximately the same as the industry rate, says Jack Sharry, president of the Private Client Group at Phoenix Investment

Even though industry data does not track redemption rates of managed accounts, industry sources say the number is about 15% — less than mutual funds.

“There's no industry statistics to draw from, so I can only go by what I observe from our firm, and our [redemption] rate is about 15% — approximately the same as the industry rate,” says Jack Sharry, president of the Private Client Group at Phoenix Investment Partners, a money management company in Hartford, Conn.

Redemption rates are lower in managed accounts versus mutual funds because “the objective and motivation of a managed account buyer is capital preservation, so they diversify more and are more likely to stick around,” Sharry says. “Basically, managed money is stickier than mutual funds.”

Len Reinhart, president and CEO of Lockwood Financial in Malvern, Pa., estimates that redemptions on managed accounts run at 10% to 12% in a normal year, 15% to 20% in a bear market and 7% to 8% in a bull market (not factoring in accounts that move to another firm with their brokers). The sales process is slow, so investors are also slower to leave, he says.

Sharry adds that he doesn't think the redemption rate on managed accounts has picked up in the last year or so, either.

Several brokers contacted for this story also say managed money tends to stay longer than fund assets, but would not guess at a figure.

An Investment Company Institute spokesperson says the redemption rate of mutual funds for the 12 months ended in July was 23.9%. But “since managed account redemption rates are not quantified, you really can't say they're ‘stickier’ than mutual funds,” says the spokesperson. “That's like saying water is wetter than alcohol.”

Measuring redemption rates of managed accounts is not far away, according to Christopher Davis, executive director of The Money Management Institute in Washington, D.C., an organization representing the managed account industry. Davis says he's in the process of forming a group that will monitor the redemption rate of managed accounts.
— R.W.

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