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Advisor-Controlled Products Still Dictate Fee Policy - Citi White Paper
Harriet Davies
7 June 2012
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.”