Independent sponsors (such as Lockwood Financial Group, in which the authors of the paper have a financial interest) for independent advisors are relatively new, and the category is still poorly defined. Many such firms are undercapitalized and have had to build their infrastructures on a piecemeal basis as their asset base has grown. With intense competition looming, these firms will have to change their approach dramatically in order to survive, the report says.
Money managers will have to provide more customization, and the emergence of a "super manager" may occur for clients with accounts in the $100,000 range. This super manager would fill a new and unique niche in the industry, creating a blended portfolio of proprietary picks from a group of "parent" money manager portfolios. This simplified approach offers an excellent educational venue for registered investment advisors (RIAs), as well as for the investing public.
Unbundling the four major components of a separate account-the money manager, the sponsor, clearing and custody and the advisor/consultant-will create value in pricing, the report adds. But by combining the components to create efficient economies of scale, the separate account business will be open to exponential growth. Still, major challenges need to be overcome, which is typical of an industry's development at this stage. A commitment to meeting these challenges by the people who practice in the profession is the key to the industry's future.
For a look at the entire 52-page report, visit the Money Management Institute's Web site at www.moneyinstitute.com.
The Evolution Of A Financial Concierge
Managed accounts are part of advisor Lewis J. Walker's big-picture strategy.
Ask Lewis J. Walker, CFP, CIMC, CRC and president of Atlanta-based Walker Capital Management Corp., about his history in the business, and you'll get a remarkable story. A member of the third class to graduate from the College of Financial Planning, Walker participated in and followed the development of the managed account and financial planning businesses from their beginnings in the early 1970s. "When we graduated, there were somewhere between 130 and 150 certified financial planners," says Walker. "Financial planning really was a brand new idea."
About that time, Walker was vice president of a real estate firm that developed investment properties. Even though he was selling real estate, investors asked questions about a wide range of financial topics about which he knew very little. Then he discovered a small nucleus of people who recently had formed a little-known organization called the International Association for Financial Planning (IAFP). "I thought this was really interesting because I thought that maybe here I could get information on a wider range of investment topics. I originally believed financial planning would be a great new way to sell more real estate investments."
But Walker got a lot more than he bargained for. The 1970s were a time when real estate investments were "hot," and inflation was rampant. "Primarily, we sold private placements and partnerships; these were not public programs," says Walker. Soon after, he obtained his securities license. "I got all these licenses and realized I really needed to be affiliated with a broker-dealer. At the same time, I was learning more about financial planning, and suddenly, the lights came on. At first, I thought it was a great new way to sell stuff, but then, I realized it was a process-an integrated strategy. Now this really was something new! I was fascinated," explains Walker.
The real estate firm where Walker began his financial planning career decided to launch its own broker-dealer. But the president of the firm suddenly died before all of the official documents were signed. "We'd done all this estate planning for him and he was going to execute, putting things in motion," Walker says. "But he said he wasn't feeling well that day, and sadly, he died at one o'clock the next morning."