Managed Account Sponsors Believe Advisers Can Better Use Offerings, Cerulli Reports

Managed account sponsor firms have expressed concern about how adviser discretionary programs operate, according to the latest Cerulli Edge—U.S. Managed Accounts Edition.

Among over 30 sponsors representing more than 90% of managed account assets, 82% indicated that the consistent underperformance of adviser-discretionary portfolio was a major or moderate concern, according to Cerulli. Meanwhile, 79% of sponsors worried these portfolios strayed from investment policy. In addition, 71% of sponsors had concerns about the lack of investment review by adviser portfolio management.

“It is critical for advisers to maintain the investment plan set forth at the start of the client relationships and to have proper oversight of the portfolios, to ensure they are continuously optimized to meet clients’ objectives,” the report noted.

The research was part of a study by Cerulli using quantitative and qualitative responses from managed account program sponsors and asset managers. The consultancy also tracked the growth of various managed account types, including rep-as-portfolio manager, unified managed accounts, and rep-as-adviser programs.

When considering advisers managing portfolios as direct representatives, they tend to lag behind home offices, which deliver more consistent returns for their clients, according to Cerulli.

“Advisers could outsource portfolio management to the home office and likely see better returns and more consistent performance, all while freeing up the adviser to spend more time with clients or source new business,” the report stated.

Cerulli found that 20% of advisers fully outsource to home office or third-party models. The majority of advisers (57%) use model portfolios created at the practice level. Alternatively, they start with home-office or third-party models and modify them as deemed necessary. Meanwhile, 23% of advisers reported creating custom portfolios from scratch for each client.

Managed accounts are an increasing area of focus for retirement plan investment management, particularly as a default option to increase personalization. In recent research from Sway Research, 17% of retirement plan advisers said they were offering a managed account option as a qualified default investment alternative for at least one client, though respondents also showed reservation in offering them, due in part to litigation concerns.

Cerulli noted that in managing clients’ portfolios, while advisers may want to take advantage of a market opportunity, they could negatively impact their client’s ability to meet their goals if they alter the asset allocation and get negative returns.

Only 30% of affluent investors felt their own individual advisers were best positioned for portfolio management responsibilities, while 40% said a dedicated team at the advisers’ firm would be a better option.

As many advisers still see their discretionary portfolios as a competitive offering, home offices understand not all advisers will outsource portfolio management. To support advisers, sponsors provide resources for better security research, access to professional portfolio managers and risk-budgeting tools.

Managed account sponsors also work with asset manager partners, who revealed that the most valuable resource they can provide is thought leadership (73%), followed by asset allocation information (50%) and portfolio construction resources (46%).

Managed account assets grew 5.2% in 2Q 2023 to reach $10.6 billion in assets, just below the peak of $10.7 billion in 2021, according to Cerulli.