Q1 2014 MMI Central Summary
Highlights of this edition include:
- In a banner year for the financial services industry, managed solutions assets rose from $2.7 trillion at the close of 2012 to $3.4 trillion at year end 2013, a 26% increase. All market segments experienced solid asset growth during the year. Unified Managed Accounts, the biggest gainer albeit on a relatively smaller base, continued to gain momentum, growing by 33% while the more mature segments – Rep as Portfolio Manager, Mutual Fund Advisory, Rep as Advisor (a non-discretionary fee-based advisory option) and Separately Managed Accounts (SMA) Advisory – rose 26%, 25%, 25%, and 22%, respectively.
- In the fourth quarter, MS assets rose 7%, an increase of $222 billion. Again, UMA Advisory led the segments with an increase of 9% followed by Rep as Portfolio Manager 8%, Mutual Fund Advisory 7%, and Rep as Advisor and SMA Advisory, both at 6%.
- Net flows for the full year were $263 billion, up 42% from the previous year, a $78 billion increase. For the trailing 12 months, the market segment net flow leaders were Rep as Portfolio Manager at 32% followed by Mutual Fund Advisory 22%, Rep as Advisor 19%, UMA Advisory 14%, and SMA Advisory 13%.
- The largest flows in 2013 occurred in the first and fourth quarters with the $63 billion posted in the fourth quarter falling short of matching first quarter flows of $88 billion. In the fourth quarter, inflows grew 6% or about $4 billion compared to third quarter results. Rep as Portfolio Manager led with net flows of $27 billion, Mutual Fund Advisory gathered $12 billion, UMA advisory $11 billion, Rep as Advisor $9 billion, and SMA Advisory $4 billion.
- During 2013, the average MS account – aided by a rising market – rose from $270,000 to $346,000. The segment with the largest average account size –SMA Advisory accounts – also had the largest increase in average size, jumping from $526,000 to $718,000.
- At year end, the top ten sponsor firms continue to dominate the market, controlling about 80% of MS assets. The leading firms and their market shares are virtually unchanged since the close of 2012. Morgan Stanley Wealth Management continues to lead with 20% of assets followed by Bank of America Merrill Lynch, Wells Fargo, UBS Financial, and Charles Schwab with 15%, 11%, 9%, and 5%, respectively.
- With flat fixed income returns and continued anticipation of a rise in interest rates, the fixed-income market share of SMA assets continues to fall, dropping another 2% in the quarter and 8% for the year.
- Among major industry segments, the 7% growth in MS assets in the fourth quarter compares to a 9% increase for Exchange Traded Funds, 7% for Long Term Mutual Funds, and 1% for Money Market Funds.
This edition also explores the gathering momentum behind managing client assets at the household level based on client goals, a movement MMI has been tracking for nearly a decade. The approach is not a new one and has been known over the years as a unified managed household (UMH), outcome-based management, comprehensive investment management, and more recently as goals-based wealth management. What is clear today, however, is that a number of leading financial services firms are devoting a good deal of effort toward the implementation of this strategy in a holistic, scalable, coordinated and efficient way.
The objective – one that is conceptually simple but difficult to implement operationally – is to create capabilities for advisors that link front-end financial planning tools to investment management processes for both accumulation and withdrawals to meet client goals at the household level, something that gains importance as baby boomers move en masse into retirement. Thus, the challenge is providing a simple solution that sits on a complex infrastructure. Many firms have made progress in this direction, but none are yet able to deliver the total solution. The next stage of development will seek to incorporate new capabilities that will allow advisors to move beyond simple asset allocation and product selection to managing taxes, liabilities and withdrawals across multiple account registrations in an optimized fashion.