White Papers

Advisor-Controlled Products Still Dictate Fee Policy - Citi White Paper

Harriet Davies Editor Americas 7 June 2012

Advisor-Controlled Products Still Dictate Fee Policy - Citi White Paper

The shift from transaction-based to fee-based accounts is still being driven by advisor-controlled products rather than unified managed accounts, according to a new white paper from Citi.

One of the reasons advisors direct managed account assets to advisor-controlled programs is that they consider asset allocation and product selection “core to their investor relationship,” and so do not want to pass control to a third-party overlay manager, the paper says.

Meanwhile, profitability of the UMA is lower than for advisor-controlled products because the overlay manager provides asset allocation and product selection, as well as account services and separate portfolio technology, Citi says. Another barrier is a lack of automated house holding capabilities.

“To increase growth and reduce costs of UMAs the administration and rebalancing should be basic capabilities of the advisor’s platform,” the white paper says.

“The stronger inflow of assets into advisor controlled managed account products, coupled with a trend toward advisor independence, suggests that UMAs may need to evolve into a more advanced portfolio management delivery mechanism.”

Unified managed accounts could achieve this, according to Citi, by allowing an advisor to control UMA/UMH asset allocation, product selection and rebalancing; allowing the distributor to maintain oversight using “advisor guardrails” and pre-trade restriction management tools; and providing household rebalancing and performance reporting for the entire investor relationship.

In other findings, wealth managers expect to invest in “advisor-driven, front-end technology,” according to the white paper, with new technologies addressing “advisor-centric investor relationships” and enabling distributors to “eliminate inefficiencies and reduce costs.”

“With these new technologies driving reconfigured advisor-controlled programs, which includes access to all managed accounts products, financial advisors can make portfolio construction and asset allocation decisions in a highly automated manner,” said Andrew Clipper, co-author of the white paper and North America head of Citi Wealth Management Services. “For UMAs to truly accelerate, advisors and distributors need to break down the silos and allow advisors to implement a UMA/UMH framework that delivers holistic client-centric portfolios.”  


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