Technology, service and experience should be considered.
In the 1980s, about five providers offered managed accounts. Today there are more than 40 managed account providers. What should advisors be looking for in a managed account program for their clients? First, ask the right questions of providers; their answers will show whether they pass the test in offering the services needed. Here are 10 factors to consider:
1. Proposal-Related Technology
Advisors can create client relationships much more efficiently by using online investment strategy and proposal systems. Online systems result in proposals no longer taking five to 10 days to turn around. Advisors can complete them in as little as 20 minutes on their laptops with pre-populated new-account paperwork that can be printed in the advisor's local office.
Look for a sophisticated investment advisory system that makes recommendations on appropriate asset allocation by asset class and constructs a properly correlated portfolio of separate account managers. Also, look for proposal systems that allocate an investment strategy across multiple registrations. Thus, if an investor has an IRA, an individual account and a trust account, the system should have the capability to automatically consolidate all three in designing an asset allocation.
2. 24/7 Account Performance/Information
Advisors and clients-especially with the increased market volatility that has been with us since September 11, 2001-now expect to get current account information via the Web. Online delivery of performance information on a daily basis gets investors and advisors what they need to know most, when they want to know it. Performance information should include month-to-date, quarter-to-date, year-to-date and since-inception performance, along with allocation by manager and asset class. Also, make sure the program sponsor provides access to individual manager and total account information on individual securities, tax lots and recognized gains and losses.
3. Independent And Objective Money Management
Many managed account programs offer a good number of proprietary managers on their platforms. Yet, there are real benefits to selecting a managed account program sponsor that has no affiliations with money management companies. Under such an arrangement, manager selection and asset allocation can be purely objective and managers can easily be replaced when appropriate.
4. Due Diligence And Asset Allocation Expertise
Disciplined asset allocation and portfolio construction strategies also are of critical importance. Program sponsors should be recommending investment manager allocations that have attractive correlations to one another and that have complementary characteristics in terms of sector weights and security weights. Remember: Building the right portfolio is much more than just an asset class recommendation.