This year’s Money Management Institute annual conference turns on a central fact: separately managed accounts (SMA) are in the midst of a critical wave of growth.
According to Washington-based MMI, assets held in SMAs totaled $398.71 billion in 2002, a considerable leap from the $161 billion reported in 1996.
Boston-based Financial Research Corp.—whose president, T. Neil Bathon, gave the conference’s first presentation—expects 5.3 million SMAs to account for some $930 billion in assets by 2006. FRC estimates that some 340,000 new accounts were opened last year.
But adding assets and accounts is only half the battle for financial advisors, says Steve Gresham, vice president with Phoenix Investment Partners. "The number-one profit driver is the longevity of the client relationship," says Gresham.
In another conference presentation, Robert Ball and Steve Klar, principals with McKinsey & Co., noted that growth in the affluent market also is likely to contribute to help sustain SMA growth. According to McKinsey surveys, roughly 95 percent of financial advisors expect more than half of their books’ assets to be in SMAs within five years.
The expected SMA explosion highlights a need for systems that let financial advisors compare the performance of investment managers. To that end, the Association for Investment Management and Research and the SMA industry are working together to create performance-reporting standards. AIMR had recently put forward standards to take effect in July, but the association has since retracted that deadline, giving the SMA industry a chance to have more input.
Another innovation suggested in the conference: tools to let advisors combine SMAs with other financial products. One panel explored the integration of hedge funds into SMAs. Robert Schulman, CEO of Tremont Advisors, noted a steep "educational curve for advisors and their clients," when dealing with hedge funds, but he nonetheless anticipated that six or eight firms would emerge as prominent players in this market. By contrast, John Calamos, president of Calamos Asset Management, sees no place for hedge funds in the managed account plan. "Retail investors are not going to understand an absolute return strategy," he says.
The MMI conference, a two-day event in New York, wraps up today. It attracted over 500 attendees.