Separately Managed Accounts in Beantown

Separately Managed Accounts in Beantown

The theme of this year's Money Management Institute conference on separately managed accounts might as well be “What Have You Done For Me Lately?”

“Multi-style accounts and unified managed accounts are a great step towards addressing consumer needs, but they are just a step in the right direction," said Chip Roame, head of Tiburon Strategic Advisors, a Tiburon, Calif.-based consultancy.

Roame, a self-described “non-expert” in separate accounts, used his prime position as first speaker of the day Tuesday to attack a number of accepted wisdoms about separate accounts. He questioned, for instance, whether enough reps are taking advantage of the customization aspect of separate accounts (his research says only 20 percent are) and whether the tax customization matters (he thinks it doesn't).

He also suggested that the absolute-return feature of separate accounts—which, along with the “exclusivity” factor, seems to be the biggest selling point of those products—won’t matter as the Baby Boomer population ages, skewing the market’s focus toward capital preservation.

Separately managed accounts have continued to grow steadily. As of the end of 2003, total assets in separately managed accounts were $506.3 billion, a 29 percent increase from the end of 2002. But speakers at the conference noted this figure is still dwarfed by mutual funds, despite the hard times and scandals that have been afflicting that industry over the last two years.

Roame and others pointed out that the types of advisors who would be more likely to be interested in separate accounts—fee-only purveyors—are not necessarily gravitating in that direction.

According to data from Tiburon, 61 percent of fee-only advisors (RIAs) use no-load mutual funds as the chief component of their investment strategy.

The conference’s second speaker, Bob Kuhna of Market Metrics, added that those who are using SMAs, mostly wirehouse advisors, are doing so because they've been encouraged to do so through higher payouts for fee-based business. He added that of those who don't use the fee-based accounts, 61 percent preferred to make their own decisions about stocks and bonds, and 60 percent say their clients don't ask for them, which Kuhna said was “code” for advisors saying they don't see any reason to sell them.

Roame's contends that SMAs are are no cure-all—just one component of a comprehesive client solution. To wit, he encouraged conference participants to take advantage of the expected growth in IRA rollovers to invent investment strategies for solving client life problems rather than building a better SMA mousetrap.

Lee Chertavian, CEO of Placemark Investments, an overlay manager based in Boston that currently serves McDonald Investments and Piper Jaffray, notes the benefits of proper tax management are indeed an example of solving client problems. He points out that over a 20 to 25 year period, effective tax management that results in an extra 40 to 100 basis points in returns would mean the difference between $200,000 and $230,000 on a $100,000 original investment. Chertavian, in an interview, added, however, that he enjoyed Roame's presentation because it avoided the “marketing” chatter that had characterized conferences past.

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