I was asked to write an opinion piece in today’s Fundfire (A Financial Times Service) on the future of SMAs and SMA managers; please contact me and I would be happy to send you the complete piece.
As a summary:
1) While other types of fee-based programs have been growing more quickly than SMAs recently – including UMAs, model portfolios, advisor-managed, alternative investments and ETFs – SMAs still have by far the largest share of assets under management and will not be going away anytime soon. While the growth of these other programs may limit their growth in retail wrap programs, I still see them doing well on the institutional side – where assets are stickier – and with advisors who see themselves as “purists,” and who avoid ETFs and alternative investments for most clients.
2) SMA managers that adapt will do well; those that don’t will probably suffer. But the world will look different to these managers: growth will be greater on the institutional side, at lower fees, which will eat into profit margins. But since sponsor firms on the retail side are taking a greater role in running model portfolios, these managers can probably reduce their distribution and marketing costs (as fewer wholesalers will be needed). In addition, as technology advances, for example on the currency and fixed income trading sides, they may be able to increase the breadth of their product offerings and venture into new areas.
The fee-based investment world is ever evolving, and many of the programs we see today were probably never envisioned a few years ago. But there is room enough in this growing area for multiple products and programs. The rumors of the death of the SMA are truly greatly exaggerated.
Tags: advisor-managed, Cerulli, ETFs, Fee-based programs, SMAs, UMAs
