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	Please click the image above to view the table of contents for Tiburon's Separately Managed Accounts & Other Fee-Account Programs research report

Tiburon Strategic Advisors, a market research & strategy consulting firm serving a wide variety of financial institutions and investment managers, is pleased to release the key highlights from its best selling research report addressing separately managed accounts & other fee-account programs, published earlier this year.

The purpose of this report is to detail the heretofore rapid emergence of the packaged fee-accounts market, and predict both the future size of this market and its upcoming key developments. This report provides readers with a comprehensive understanding of not only the most widely studied product – specifically, separately managed account programs (SMAs) – but also the seven other types of packaged fee-accounts programs, from both proprietary sponsors and turnkey asset management programs (TAMPs).

Tiburon’s first draft of this report was published in 2001; that version focused narrowly on the emergence of independent fee-account programs, now often called turnkey asset management programs (TAMPs). This was only an emerging segment at the time, and that draft sought to organize that emerging business.

The second draft of this report, published in 2002, expanded the focus of the report to also cover the death of business-to-consumer separately managed account models, and the rapid emergence of the new breed of platform-oriented turnkey asset management programs, led by Envestnet and Advisor Port.

The third draft of this report, published in 2005, expanded its focus on the dominant programs of the wirehouses and regional brokerage firms.

The fourth draft of this report, published in 2007, sought to put separately managed accounts and the other seven types of packaged fee-accounts into their proper context within the industry, namely alongside the other more traditional fee-based investment services long provided by fee-only financial advisors (RIAs) and bank trust officers, tried to offer a comparison of traditional separately managed account programs and the emerging newer program type called multiple style portfolios, expanded the industry’s view of what is popularly (and correctly) perceived to be the industry’s eventual panacea – the unified managed account, and highlighted the best opportunities for TAMPs, enablers, and money managers.

Key Highlights

This report has a long list of interesting facts to share.

The Emergence of the Fee-Accounts & TAMPs Market
This section of the report provides key highlights including a history lesson about fee-accounts, their underlying driving factors, statistics on past growth, and a current market status summary:

• Fee-accounts, largely ignored until the Tully Committee of 1995, began to gain huge momentum in the late 1990s with individual investors
  
• The two core benefits of fee-accounts versus commission accounts are the alignment of financial advisor & client interests, and the promotion of client-oriented services
  
• Registered reps now earn over one-third of their total revenues from fee-accounts; in 1995, that share was just 8%
  
• At least 64% of consumers say that they prefer to pay financial advisors by fees as opposed to 36% preferring commissions
  
• Since 1996, packaged fee-accounts asset growth has been explosive, reaching $1.5 trillion at the end of 2006
  
• A broader definition of the fee-accounts world includes packaged fee-accounts (the $1.5 trillion), fee-only financial advisors (another $2.2 trillion in fee-based assets), bank trust departments (another $1.0 trillion in fee-based assets), and money managers selling directly to high net worth individuals (another ~$500 billion)
  
• Separately managed accounts & multiple style portfolios account for 53% of the collective assets in packaged fee-accounts
  
• The next largest product, fee-based brokerage accounts, account for only 22% of the assets
  
• Separately managed accounts have maintained share despite newer products being introduced; their share of assets in 2001 was basically the same it is today, at 55%
  
• Assets in separately managed accounts are now $720 billion
  
• The average account size of a separately managed account has risen to $322,422 from $237,000 in 2003
  
• The serious concerns regarding traditional separately managed accounts are amazingly fifteen fold, including questionable portfolio manager focus and the underutilization of customization & tax benefits
  
• The multiple style portfolio market is now nearly $100 billion, growing at twice the pace of traditional separately managed accounts
  
• The average account size of multiple style portfolios has risen to $481,057, up 25% since 2004; this is more than 50% higher than the average separately managed account
  
• Mutual fund wrap accounts were introduced in the 1990s so that the fee-accounts model could be utilized with moderate net worth households; they have been most popular outside of the wirehouses
  
• Assets in mutual fund wrap accounts are now over $300 billion
  
• Mutual fund wrap accounts have continued to see growth in net cash flows with $50 billion in 2006, after some slow years during the bear market
  
• Mutual fund wrap accounts are curiously sometimes perceived to have lower fees; this is untrue when considering separate account managers’ fees are wrapped in, and mutual funds often have additional fees of up to 1.50%
  
• ETF wrap account programs have emerged largely out of those questions about the true cost of mutual fund wrap accounts
  
• In total, annuity wraps account programs have minute assets in them, likely shy of $5 billion overall
  
• Unified managed accounts represent only $24 billion in assets under management today, although few have delivered on the total promise of a unified managed account
  
• Many firms have long delivered custom unified managed accounts for their wealthiest clients, such as private banks & family offices
  
• Broker wrap accounts have held relatively steady in assets, and are now about $90 billion
  
• The defining issue of fee-based brokerage account programs has been that financial advisors selling them are not legally required to do what is in the clients’ best interests; this idea fell under the microscope starting in 2003
  
• Despite regulatory troubles, fee-based brokerage accounts have reached nearly $300 billion in assets
  
  

Key Players in the Fee-Accounts Market
This section of the report details key highlights in regards to proprietary fee-account program sponsors such as the wirehouses, turnkey asset management programs (TAMPs), TAMP users, and other fee-accounts enablers:

• Every financial services firm that wishes to offer clients fee-accounts has only two choices – become a proprietary sponsor or outsource to a TAMP
  
• Each of the wirehouses has been moving towards offering their reps a complete fee-accounts platform, complete with each of the eight types of fee-account programs
  
• Wirehouses dominate the packaged fee-accounts market today, controlling over two-thirds of the market amongst the five of them
  
• Merrill Lynch and Smith Barney dominate the other players in total fee-accounts assets, each having over double the assets of the third leading player
  
• Smith Barney is now in the lead – having taken the top spot from Merrill Lynch over the past two years – with a total of $266 billion in fee-account assets
  
• The wirehouses’ share of separately managed account assets has been declining over the past few years, but there is some evidence of a rebound
  
• The wirehouses are predominantly focused on separately managed accounts, with Wachovia Securities being the exception; both Smith Barney (about 75% of assets) and Merrill Lynch (about 45%) have a dominant share of their fee-accounts assets in separately managed account programs
  
• Wirehouses only control one-third of mutual fund wrap account assets, down from 48% in 1999
  
• Ameriprise Financial is the leader in mutual fund wrap accounts with $39 billion, and Fidelity is close with $36 billion
  
• The mutual fund wrap account industry is much more fractured than is the separately managed accounts market, with the top two firms controlling only one-quarter of the market
  
• Smith Barney and Merrill Lynch hardly register in terms of mutual fund wrap accounts as a share of overall fee-account assets, with less than 10% in them each
  
• TD Ameritrade, & Buckingham Asset Management might be ahead on ETF wrap account assets due to their early creation of their programs
  
• None of the players are focused on annuity wrap accounts of yet
• The unified managed account industry as it is defined today account for $24 billion in assets under management; some early movers include Genworth Financial, Ameriprise, and Smith Barney
  
• Smith Barney dominates the broker wrap account market, with nearly three times the assets of its nearest competitor, at $31 billion
  
• The wirehouses control nearly three-quarters of the broker wrap account market
  
• Merrill Lynch leads in fee-based brokerage account assets at $89 billion, with almost three times the assets of its nearest competitor
  
• Though Merrill Lynch dominates in assets, LPL has the highest concentration of fee-accounts assets in fee-based brokerage accounts due to the success of its SAM program
  
• TAMPs have enjoyed tremendous success because they can get a comparable platform solution out the door to a new client for a fraction of the cost, in ninety days, with a fraction of the liabilities
  
• The growth of assets under administration of the TAMPs has been substantial, and now stands at about $250 billion
  
• In 2002, TAMPs represented 11% of the packaged fee-accounts market; in 2005, that share had risen to 16%
  
• There is some fierce competition at the top of the TAMP world, with three firms now exceeding $30 billion in assets under administration and ten having over $5 billion
  
• All told, the top ten TAMPs account for just over 90% of the TAMP market
  
• Although separately managed account programs are growing rapidly in the independent advisor markets, two-thirds of TAMP assets are still with mutual fund TAMPs
  
• Nonetheless, TAMPs’ share of separately managed account assets has risen to 12% from 7% in the past few years
  
• The number of TAMPs has declined rapidly due to acquisitions & rollup activity, falling from almost 70 in 1999 to about 40 today
  
• Less than ten percent of fee-only financial advisors use separate account managers
  
• The Big Four CPA firms’ fee-accounts models have faced three problems stunting their growth
  
• Mid-size and regional CPA firms are moving even more aggressively into fee-accounts than the Big Four
  
• The share of separately managed accounts assets that banks are capturing is on the rise, now holding 8% of overall assets, up from 4% in 2003
  
• The assets in some of the discount brokerage firms are impressive enough to make TAMPs salivate; The Charles Schwab Corporation leads with over $500 billion in its discount brokerage unit alone
  
• However, there are two fundamental flaws that need to be considered about the discount brokerage industry before TAMPs move too quickly – low average account sizes and inconsistent branch structures
  
• Savvy TAMPs have begun targeting the international channels, which are a potentially lucrative market
• The most successful enablers of late have been the overlay managers, which have achieved a great deal of success the past year or two alone; for instance, Placemark signed a huge deal to help Smith Barney deliver its unified managed account program
  
  

Processes, Innovations, & Challenges in the Key Components of Fee-Accounts
This section of the report details key highlights in regards to the processes & innovations occurring in the fee-accounts market that are changing the way the business will look into the future:

• All of the wirehouses have strongly incentivized their financial advisors to move towards fees; at Merrill Lynch & Morgan Stanley, they provide a 3% boost to $500,000 producers that would mean $15,000 of incremental income
  
• Only 38% of full-service brokers who recently converted to a fee-based business model reported some degree of suffering in terms of revenues
  
• 70% of survey respondents rank operations as the top issue for separately managed accounts; 24% list reporting, 20% list personnel, 18% list fee pressure, and 12% list performance
  
• The Chartered Financial Analyst (CFA) Institute recently ended the four-year debate with the Money Management Institute and decided to give money managers the option of excluding their separate accounts businesses from its new reporting standards
  
  

Future Predictions for This Rapidly Growing Business
This last section of the report details future predictions for their rapidly growing business, including which channels are likely poised to help drive growth, and strategic conclusion for TAMPs, enablers, and money managers:

• The packaged fee-accounts market should reach nearly $3 trillion by 2010
  
• Program sponsors & money managers rate the future of fee-accounts relatively highly, giving them a 7.8 average score, out of 10.0
  
• In total, the broader fee-accounts market (including fee-only financial advisors, bank trust officers, and directly marketed money managers) could grow to nearly $10 trillion by 2010
  
• Separately managed accounts, multiple style portfolios, and unified managed accounts collectively are expected to increase their dominant share of fee-accounts assets from about 55% today
  
• Assets in separately managed accounts & multiple style portfolios will more than double over the next four years, reaching $1.5 trillion by 2010
  
• Multiple style portfolios may soon rival mutual fund wrap accounts in assets under management, expected to surpass $400 billion in 2011
  
• Multiple style portfolios are expected to gain on separately managed accounts, rising to 27% of combined separately managed accounts assets from just over 10% today
  
• Despite separate accounts’ likely success in capturing mutual fund assets, mutual fund wrap account assets should also increase substantially, reaching $500 billion by 2010
  
• Exchange traded funds are expected to proliferate in both proprietary packaged fee-account programs & TAMP programs; ETF wraps’ cost effectiveness over mutual fund wrap accounts should prove them to be a more than worthy competitor for fee-account assets
  
• Unified managed accounts (under the current definition) are expected to not pass $100 billion in assets until 2011
  
• Even if high flying unified managed accounts projections come true and separately managed accounts are flat, they will contain less than one-sixth the combined assets by 2011
  
• Broker wrap account assets should surpass $200 billion by 2010
  
• Assets in fee-based brokerage accounts will slow significantly due to assets moving to broker wrap accounts, but should still reach $330 billion by 2010
  
• In the future, databases that incorporate several investment vehicles into one will be needed – so financial advisors can compare across vehicles on one screen
  
• Money managers have traditionally had a home run opportunity in the wirehouses, but a handful of factors are threatening those relationships’ future viability
  
• 40% of senior bankers expect that banks will gain significant share in separately managed accounts in the near future
  
• Despite their excitement, banks’ market share of separately managed accounts assets is more likely to stall around 8%, where it is now
  
• Advisory 401K accounts and separately managed accounts as a product inside 401K plans will both do well, but these are two distinct opportunities, with one likely better than the other
  
• The international separately managed accounts market may reach almost $400 billion by 2007
  
• The richest of the international markets regions – the English speaking markets – have far less investable assets than the US even when combined, and hence the opportunity there in the best case is limited to being only a fraction of opportunities in the US
  
• Partially because of the booming distribution opportunities, the TAMP market should grow substantially due to over $600 billion by 2010
  
• There are five ways the TAMPs market will shift in the future – platforms will win, higher margins need to be found, a two-step sale is necessary, TAMPs must try & force some paradigm shifts, and the industry will continue to consolidate
  
• TAMPs will only get paid 6 – 10 basis points for just providing the systems, whereas those providing the product as well will get up to 40 basis points
  
• The acquisitions trend in the TAMPs market is likely to continue well into the future, eventually leading to a handful of powerful platform firms battling it out for supremacy
  
• Past acquirers in the TAMP market have paid for those with a platform orientation, and for those with substantial assets under management – such as Asset Mark, which was acquired in 2006 for a record $230 million (plus five years worth of incentives worth an additional $110 million) by Genworth Financial
  
• There is good reason to think that a firm such as Envestnet – larger than Asset Mark and more entrenched as a platform provider – could fetch an amount exceeding the $230 million paid by Genworth
  
  

To better understand the developments in Separately Managed Accounts & Other Fee-Account Programs , executives can purchase the full Tiburon research report where the key learnings highlighted above are covered in greater detail. Please contact Sarah Sage at SSage@TiburonAdvisors.Com.