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New Tiburon Research Report - Separately Managed Accounts & Other Packaged Fee-Account Programs: Recasting a Growing Industry

Tiburon Strategic Advisors, a market research & strategy consulting firm serving a wide variety of financial institutions and investment managers, is pleased to announce the release of its newly updated research report on Separately Managed Accounts & Other Fee-Account Programs. This research release summarizes some of the report's key findings.

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

The purpose of this report is to provide readers with a comprehensive overview of the packaged fee-accounts market. This report should serve as a bible for any existing or new participant in the separately managed accounts or other fee-account programs market. No individual trend is as profound as the shift away from commission brokerage towards the eight types of fee-account programs: fee-based brokerage accounts, broker wrap accounts, mutual fund wrap accounts, annuity wrap accounts, ETF wrap accounts, multiple style portfolios, separately managed accounts, & unified managed accounts. This comprehensive report includes statistics on the leading players, details of each market segment, highlights of innovations in the four components of fee-accounts, & predictions for the future. This is Tiburon’s fifth draft of this report; at this point, it is fairly well developed.

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, addressed the death of the business-to-consumer separately managed account programs that had arisen in the web craze of the late 1990s, and the rapid emergence of the new breed of platform-oriented turnkey asset management programs, led by Envestnet Asset Management 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 management services provided by fee-based financial advisors (RIAs) and bank trust officers. That version also sought to offer a comparison of traditional separately managed account programs with the twin trends towards multiple style portfolios and unified managed account programs.

This is Tiburon’s fifth draft of this report; this version seeks to better align this report with other Tiburon research reports, flesh out the market history of fee-account programs, address recent industry developments (e.g., those around the Merrill Lynch rule), and enhance the profiles of some core Tiburon clients, including Dunham & Associates Investment Counsel, Envestnet Asset Management, My Vest Corporation, & SEI Investments.

Key Findings
This report has a long list of interesting facts to share:

The Evolution of the Separately Managed Accounts & Other Packaged Fee-Account Programs Business

This chapter outlines the evolution of the separately managed accounts & other packaged fee-accounts industry.

Market History

  • Fidelity Investments offered the first packaged mutual fund wrap account program known as Portfolio Advisory Services in 1989
  • Dozens of TAMPs entered the mutual fund wrap account programs in the early 1990s
  • Fee-account assets grew 50% in 1996, after only growing 2% in 1995
  • The Financial Planning Association filed a second lawsuit against the SEC, challenging its April decision to modify and make permanent the broker/dealer exemption
  • The Merrill Lynch Rule was abolished in 2007 causing reps offering fee-accounts to convert them to another compensation arrangement or register as an investment advisor

Key Driving Factors

  • Ultimately, the two core benefits of fee-accounts versus commission accounts are the alignment of advisor & client interests, and the promotion of client-oriented services
  • Fee-accounts also promote increased fiduciary responsibility

Market Definition

  • The fee-accounts market includes proprietary fee-accounts, tamps, packaged fee-account programs, fee-based financial advisors, BT departments and SAMs

Market Growth

  • Since 1996 packaged fee-accounts asset growth has also been explosive, breaking through the $1.5 trillion at the end of 2006. In 1992, fee-account assets were only $82 billion
  • In actuality, packaged fee-accounts represent only about one-quarter of broader fee-account assets, when including the assets at bank trusts & fee-only financial advisors

Leading Fee-Account Program Sponsors (Proprietary & TAMPs)

  • An analysis of some leading firms’ total assets under administration and share of assets in fee-accounts illustrates that while all of the wirehouses have made strides to increase recurring revenues, they are still largely commission-based businesses
  • Smith Barney has traditionally been the leader in multiple style portfolio program assets; Wachovia is next with less than a third the assets
  • TD Ameritrade & Buckingham Asset Management might be ahead on ETF wrap account assets due to their early creation of their programs
  • The wirehouses clearly have a grip on the broker wrap account market, one which has far fewer competitors than the other fee-accounts

Market Segmentation

  • Every financial services firm that wishes to offer clients fee-accounts has only two choices – become a proprietary sponsor, or outsource to a TAMP
  • TAMPs are gaining a larger share of the overall packaged fee-accounts market, specifically now accounting for over 15% of the market
  • TAMPs are gaining an even bigger share of overall fee-account assets, as fee-account assets held in TAMPs is now over 15% of the market
  • The TAMP market is incredibly concentrated; the ten largest firms account for nearly all the assets, with all other firms having no share at all

Product Segmentation

  • Despite their lower minimums, what are called unified managed accounts today have an average account size of $1.1 million
  • There are 2.5 million separately managed accounts, up 56% since 2001
  • After slowing with the depressed markets in 2000-2002, assets in separately managed accounts began to grow again in 2003, now having reached over $800 billion
  • Wirehouses dominate separately managed account assets under managements, accounting for three-quarters
  • The multiple style portfolio assets are now nearly $100 billion, growing at twice the pace of traditional separately managed accounts
  • Mutual fund wrap assets have grown to over $360 billion, an increase of almost 40% since 2005
  • ETF wrap account programs assets are likely over $5 billion
  • Broker wrap account assets were holding relatively steady, until recently jumping to $90 billion in 2005 with displaced fee-based brokerage assets
  • Fee-based brokerage accounts had proved to be one of the fastest growing products in the financial services industry, reaching nearly $300 billion in 2005, before slipping off

Key Issues

  • Almost 400 managers across four categories compete in the separately managed accounts market
  • Legg Mason is the leading separate account manager with $63 billion in assets, after having fallen from over $70 billion after the Smith Barney deal
  • The top twenty five separate account managers account for over 70% of assets
  • A minimum wholesaling effort could cost $1.5 million per year
  • A quarter of advisors’ compensation is from separately managed accounts, expected to increase to greater than a third in the next few years
  • Due to better software and portfolio management systems, investment managers, who normally take institutional accounts in $5 million chunks, are more willing to run wrap portfolios as small as $100,000

Markets & Distribution Channels

This chapter highlights markets & distribution channels of the fee-accounts industry.

Direct Distribution

  • The assets in some of the discount firms are impressive enough to make TAMPs salivate; Charles Schwab & Company leads with over $500 billion in its discount brokerage unit alone
  • A couple of discount firms have already launched online wrap programs as well, namely Charles Schwab & Company and TD Ameritrade

Financial Advisor Markets

  • Wirehouses dominate the packaged fee-accounts market today, with over two-thirds of the market share among the five of them
  • There are nearly 96,000 reps in the independent broker/dealer industry, which has been fairly flat over the past four years
  • The independent rep market has seen substantial growth in fee-accounts, now accounting for 16% of all revenues
  • In any case, fee-only financial advisors now manage over $2 trillion of client assets

Future Predictions for the Separately Managed Accounts & Other Packaged Fee-Account Programs Business

This section details future predictions for this rapidly growing business, including the channels that are likely poised to drive growth, and some strategic conclusions for TAMPs and fee-account service providers.

Substantial Expected Growth for Both the Packaged Fee-Accounts & Broader Fee-Accounts Markets

  • In total, the entire fee-accounts market should grow to nearly $16 trillion in 2012
  • Packaged fee-accounts’ share of broader fee-account assets will likely increase, but fee-only financial advisors will gain the most share in the future

Growth in Seven of the Eight Types of Fee-Account Programs, Led by Innovations in Multiple Style Portfolios (MSPs) & Unified Managed Accounts (UMAs)

  • Separately managed accounts are likely to maintain the largest market share in fee accounts through 2012, while multiple style portfolios and unified managed accounts collectively are may pick up some share its in the future from about 55% today
  • All eight types of packaged fee-accounts would seem to have a very bright future, but the biggest home runs will come from multiple style portfolios, ETF wrap accounts, and unified managed accounts
  • Multiple style portfolios may soon rival mutual fund wrap accounts in assets under management, expected to surpass $500 billion in 2012
  • ETF wrap accounts are a huge innovation in packaged fee-accounts, and their assets under management should grow substantially in the future
  • Broker wrap account assets should surpass $200 billion by 2010, increasing sharply in the next two years due to displaced fee-based brokerage account assets

Emerging Distribution Opportunities, Led by the Independent Broker/Dealers (IBDs), Banks, & Insurance Companies Markets

  • The wirehouse channel is a big portion with 68,300 advisors at them and other national broker/dealers
  • The independent reps channel has over 80,000 advisors, and is the biggest standalone channel of advisors
  • The fee-based financial advisors channel has over 30,000 advisors
  • Up to 25 million 401K plan participants may be offered a managed fee-account retirement plan option by 2010
  • Almost half of defined contribution plan sponsors may offer separately managed accounts by 2012

Expected Process Improvements, Including Emerging Technologies Streamlining the Separately Managed Account Back Office

  • Unlike proprietary program sponsors, TAMPs have historically only earned program fees; this needs to change for TAMPs to increase their margins
  • On the product side, there are two key ways for TAMPs to increase their profit margins, including taking account discretion and creating sub-advised mutual funds & other products

To better understand the developments in Separately Managed Accounts & Other Fee-Account Programs, executives can purchase Tiburon's Separately Managed Accounts & Other Packaged Fee-Account Programs: Recasting a Growing Industry Research report where the key findings highlighted above are covered in greater detail. Please contact Sarah Sage at SSage@TiburonAdvisors.Com or 415-789-2540.

Additional Information
The following links will open specific pages on Tiburon's web site:

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Tiburon Strategic Advisors

Tiburon Strategic Advisors, based in Tiburon, CA, was formed in 1998 to offer market research & strategy consulting services to all types of financial institutions and investment managers:

  • The firm has served over 300 corporate clients and completed over 1,100 projects since its founding, and today its knowledge base includes mutual fund distribution, separately managed account programs, alternative investments, wealth management, insurance products, banking services, the fee-based financial advisor market, the CPA firm market, the family office market, & various international markets.
  • Tiburon holds a series of CEO Summits semi-annually for its executive-level clients. Upcoming CEO Summits are scheduled for April 15-16, 2009 (New York, NY) and October 7-8, 2009 (San Francisco, CA). Attendance is by invitation only and attendance at each Summit is managed to between 100 & 125 senior industry executives. Visit the CEO Summits section of Tiburon's web site for details on current & past CEO Summits, including attendee lists, meeting agendas, & highlights. Please contact Tiburon's Managing Principal Chip Roame at CRoame@TiburonAdvisors.Com or (415) 789-2541 if you are a Tiburon client and have an interest in attending a future Tiburon CEO Summit.
  • Tiburon has published forty-seven ~300-400+ page research reports, which offer detailed analyses of growing business segments; each is available for $5,000; these reports can be ordered by contacting Sarah Sage at SSage@TiburonAdvisors.Com or (415) 789-2540.
  • Tiburon offers an annual research report access program, whereby dozens of clients receive access to the Tiburon library & all Tiburon reports published within a year for $25,000; clients can subscribe to Tiburon's 2009 Research Report Access Program by contacting Sarah Sage at SSage@TiburonAdvisors.Com or (415) 789-2540.
  • Tiburon also offers a database access program, whereby it shares its 300,000+ person industry executives contacts database with dozens of clients for $25,000 per year (distributed quarterly); clients can subscribe to Tiburon's Database Access Program by contacting Sarah Sage at SSage@TiburonAdvisors.Com or (415) 789-2540.
  • Tiburon offers thirteen online business benchmarking tools that are available to all types of financial advisors in an effort to help them benchmark their business practices and build more successful businesses. The sites include www.BrokerBestPractice.Com for wirehouse & regional brokers, www.FABestPractices.Com for fee-based financial advisors, www.IndependentRepBestPractices.Com for independent reps, and www.PrivateBankerBestPractices.Com for private bankers. Almost 5,000 financial advisors have used these tools. By completing one of the online surveys, financial advisors can access a FREE copy of the relevant comprehensive Tiburon research report, which summarizes & analyzes the collective results.
  • Tiburon's weekly research releases, like this one, are emailed for free to interested industry executives, media representatives, conference planners, & individual financial advisors. Over 55,000 industry executives now receive these releases. Feel free to sign up to receive future research releases at Tiburon's web site (www.TiburonAdvisors.Com) if this release was passed to you by a colleague and you would like to receive them directly in the future.
  • Tiburon plans to expand its workforce in 2008-2009. Specifically, the firm plans to add two-to-three incremental principals (the most senior role at the firm) and several more research associates in 2008-2009.
  • Tiburon has built three executive programs (CEOs-in-Residence, Financial Advisor Roundtable, & Consulting Fellows) in an effort to bring the experiences of additional senior level industry executives to Tiburon clients. Feel free to contact any of the members of Tiburon’s executive programs directly or ask that they be included in any ongoing Tiburon project.

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