FA: Thank you, Harold, for your explanation.
Lisa Gray, CIMC, is a Memphis, TN-based financial journalist and consultant who assisted in the writing of this article.
Research Predicts SMA Pricing Model Changes
Innovations in services and products are also anticipated.
By Sydney LeBlanc
In 2002, assets in separately managed accounts held steady while the assets in mutual funds declined. By last October, mutual fund assets were down 8% while separately managed account assets were down only 1.4%. Part of the reason is that separately managed accounts are aggressively being introduced in the independent advisor markets, giving them more fuel to move ahead.
Another factor is that brokerages and custodial service providers continue to expand and develop various types of fee-based programs, and the number of product offerings will continue to grow. These investment vehicles are likely to expand more creatively; for example, several firms already are building wraps around exchanged-traded funds and folios.
To further explain how fee accounts and SMAs will prosper, Tiburon Strategic Advisors in February released an updated version of its 305-page report, "Fee Accounts, TAMPs, and the Booming Separately Managed Accounts Market." For purposes of this article, we have distilled portions of the report and will focus on their predictions for, and expected innovations in, the following areas:
A. Pricing Models
B. Wealth Management Accounts
C. Other Innovations, including MDAs, Altern-atives and Packaged Products
Pricing Models
Commission Models: Over the past decade, the industry has promoted fee-based business as the answer to commission-based conflicts of interest. Curiously, one of the pricing model predictions is centered around commissions. We may see some fee account programs with contingent deferred sales charges, which could include charges of 3%, 2% and 1% over three years. This would appeal to those advisors and brokers in transition from fees to commissions. An advantage to clients would be the gradual introduction of fee accounts for those not yet fully engaged, or who just want to take it more slowly. The report suggests that a blending of fee and commission models may be emerging as well.