Managed Solutions Rise 5.5% to $3.2 Trillion
Highlights of this edition include:
- With continuing growth in net flows and aided by market appreciation, total MS assets, which had passed the $3 trillion mark for the first time last quarter, continued to grow in the third quarter, rising 6% to $3.2 trillion. Approximately 35% of the $167 billion quarter-to-quarter increase was attributable to net inflows with the balance coming from market appreciation.
- Looking at MS asset growth by market segment, UMA Advisory once again had the largest asset growth of any segment – 8% – double its second quarter growth rate. Rep as Portfolio Manager, which had the largest quarterly net flows, and Mutual Fund Advisory both grew 6%, up from 3% and 2%, respectively, in the second quarter. The Rep as Advisor segment (a non-discretionary fee-based advisory option) increased 5.6% compared to a 1% increase in the prior quarter, and SMA Advisory continues to trail other market segments, posting a 3% asset gain.
- Net MS industry flows for the third quarter were nearly $59 billion, up 8%, or approximately $4 billion, from the previous quarter, but below the $88 billion recorded in the first quarter. Year-to-date flows, however, stand at $202 billion, outpacing the $184 billion in flows for all of 2012. Flows for the trailing one-year period were $247 billion compared to $234 billion at the close of second quarter 2013.
- While this was clearly a stronger quarter for the MS industry vis-à-vis the modest 2% growth in the second quarter, flows were mixed across market segments. Rep as Portfolio Manager, continuing to display solid momentum, was the leading segment with quarterly inflows of $18 billion, and SMA Advisory recorded $11 billion in net flows, nearly doubling its $6.4 billion intake during the second quarter. In contrast, net flows for Mutual Fund Advisory, Rep as Advisor and UMA programs all lost ground compared to the previous quarter, their aggregate volume dropping $9 billion.
- Rep as Portfolio Manager continued to have the largest trailing one-year net flows, some $74 billion. For the trailing twelve months, the market segment net flow leaders were Rep as Portfolio Manager at 30% followed by Mutual Fund Advisory, Rep as Advisor, SMA Advisory and UMA Advisory at 23%, 21%, 14%, and 12%, respectively.
- With flat fixed income returns and a widespread anticipation of a rise in interest rates, the fixed-income market share of SMA assets has fallen from 47% at the end of 2012 to 41% while the equity market share has increased proportionally. This translates into slower growth for SMA managers specializing in fixed-income products.
- Among major industry segments, the 6% growth in MS assets compares to a 9% increase for ETFs, and 3% each for Money Market Funds and Long Term Mutual Funds.
- From year end 2010 through the third quarter of 2013, the MS market share of non-discretionary accounts has dropped 10% from 49% to 39% – continuing evidence of a growing appreciation for the value of managed solutions and discretionary advice.
MMI Survey: Managed Solutions Assets Projected to Approach $4 Trillion by the Close of 2014
Each year, MMI conducts a survey of sponsor firms asking for growth rate projections for each of the MS industry market segments, and the responses are consolidated to generate an aggregate industry forecast, the results of which are summarized below.
- The responses were optimistic about the near-term prospects for the MS industry, projecting assets to reach $3.7 trillion by 2014, representing annual growth rates of 20% for 2013 and 14% for 2014. If the estimates prove correct, assets will have more than doubled over the seven-year period from 2007 to 2014, a compound annual growth rate of approximately 11%.
- It appears that sponsor firms have good reason for their positive outlook. At the close of the third quarter, the industry had already nearly achieved its full-year 2013 forecast. MS assets for the period stood at $3,215 billion, only slightly below the full-year forecast of $3,234 billion.
- Sponsor firm executives identified six major trends that will influence the direction of the MS industry and promote growth in assets. These trends fall into two major categories: changes in how advisors deliver advice and the emergence of new products and/or markets.
- Platform integration, discretion and outsourcing all influence the way in which advisors deliver advice to clients, and the trends currently emerging in these areas are changing the game by providing financial advisors with greater flexibility, access to emerging products and better overall portfolio solutions.
- The introduction of new products, such as liquid alternatives and the emergence of advisory solutions for underserved market segments like Gen X and Y investors, also provide the groundwork for future industry expansion.
- Some MS market segments are expected to benefit more than others from these trends. The Mutual Fund Advisory market, for example, is the segment expected to grow at the fastest rate, 22%. The asset growth linked to MF Advisory programs will be driven by access to new products, strategic outsourcing and program flexibility. If the 2014 forecast for this segment is on target, assets will exceed the $1 trillion level by year end.
- UMAs are forecast to grow at 21% in 2014 because sponsor firms see UMA platforms as delivering superior solutions in a more efficient manner. The largest sponsors continue to commit resources to platform integration, and ongoing advisory platform consolidations and advisor adoption will help to drive this segment’s growth.