- Clients want to delegate investment management
- In a discretionary arrangement, the advisor can quickly rebalance these accounts and swap out underperforming managers for new managers
- In a client discretionary arrangement, advisors need to get permission from the client before making changes to the portfolio
According to the latest managed accounts research from global analytics firm Cerulli Associates, discretionary accounts will continue to exhibit strong growth.
"Clients are largely working with financial advisors because they want to delegate investment management," comments Tom O'Shea, associate director at Cerulli. "In addition, advisors are looking to take over more of the discretion as it allows them to easily manage their books of business."
In their latest annual report, U.S. Managed Accounts 2016: Leveraging Digital Advice to Maximize Scale, Cerulli analyzes the fee-based managed account marketplace, which has been a core research focus since the firm's inception in the early 1990s. This report, in its fourteenth iteration, is the result of ongoing research and quarterly surveys of asset managers, broker/dealers, and third-party vendors, which captures more than 95% of industry assets.
"Many rep-as-portfolio-manager platforms and unified managed account platforms allow advisors to tie client accounts to portfolio models the advisor has created," O'Shea explains. "In a discretionary arrangement, the advisor can quickly rebalance these accounts and swap out underperforming managers for new managers. In a client discretionary arrangement, where the client has the ultimate control, advisors need to get permission from the client before making changes to the portfolio."
"If current trends in the managed account industry hold, discretionary accounts will reach $4 trillion by year-end 2019," O'Shea adds.