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MDAs: The Next Big Thing

Asset and investment style diversification in just one account.

Most brokers have not embraced the individually managed account concept. But they might as well get used to it. Management is committed to the idea and, in fact, is already on to next big thing, IMA version 2.0, if you will.

The multidisciplinary account, or MDA, provides clients with asset class and investment style diversification in one privately managed account. A manager of managers oversees the sub-managers, to prevent a scenario, say, in which the value manager is selling IBM while the growth manager is buying IBM.

The client receives just one account statement rather than the several he would receive if he had a stable of different IMA managers. (Some investors aren't sold on the importance. See page 87.) Not all brokers are fond of the new permutation (they claim it reduces the broker to a mere asset gatherer), but the ones that do like it say the main benefit is that it doesn't demand constant monitoring in order to maintain diversity and tax efficiency (the manager of the managers does that).

How much potential do these accounts have? At the Money Management Institute conference last month, Norm Nabhan, national sales director for the Consulting Group of Salomon Smith Barney, said that Smith Barney's IMA platform took in nearly $15 billion in 2001. And half of that flowed into its MDA program. As usual, Smith Barney is in the vanguard on the managed money front. Industrywide, MDAs still account for only a small amount of the assets in separately managed accounts.

Merrill Lynch is getting in on the action. On tax day, Merrill announced that it had launched its own MDA program, the Consults Diversified Portfolios. Merrill's move follows similar offerings last January from UBS PaineWebber and Wachovia.

Other groups also offer MDAs. Placemark Investments has TOTAL, which examines IMA managers' buy-and-sell preferences and makes the decision to undertake portfolio changes based on the tax implications for the individual client.

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