MMI Central 4Q 2014 Summary

Managed Solutions Assets Record a Modest 3Q Rise  
New Net Flows of $68 Billion During the Quarter

 Highlights of this edition include:

  • In a turbulent third quarter equities market that saw the S&P 500 post a 1.1% gain, MS assets rose 1.6% to just over $3.8 trillion, maintaining the upward momentum – albeit at a slower pace – that has been sustained since the end of the 2007-2008 financial crisis. In the first three quarters of 2014 assets have risen about 12%, and over the trailing four quarters the increase has been 19%. 
  • All market segments recorded asset increases in the third quarter led by Unified Managed Account (UMA) Advisory and Rep as Portfolio with gains of 8% and 3%, respectively. The UMA percentage gain was, however, skewed by an intra-quarter acquisition of one platform provider by another. Adjusting for this acquisition, UMA Advisory assets were up about 3%. Separately Managed Account (SMA) Advisory, Rep as Advisor (a non-discretionary, fee-based advisory option), and Mutual Fund Advisory all had asset growth of less than 1%. 
  • Net flows were $68 billion, down from the $80 billion recorded last quarter. The aggregate trailing four-quarter net flows for the third quarters of 2014 and 2013 were $275 billion and $247 billion, respectively – an increase of about 11%.  
  • With $27 billion in inflows, Rep as Portfolio Manager programs accounted for nearly 40% of the $68 billion in net MS flows during the third quarter. Mutual Fund Advisory ranked second with $15 billion in net flows followed by UMA Advisory at $10 billion while both SMA Advisory and Rep as Advisor recorded $8 billion in net flows for the quarter.
  • Looking at trailing four-quarter net flows, Rep as Portfolio Manager’s one-year flows of $96 billion were once again the highest of any market segment by a substantial margin. Second was Mutual Fund Advisory with $72 billion in trailing one-year flows, followed by UMA Advisory, Rep as Advisor and SMA Advisory with flows of $42 billion, $35 billion and $30 million, respectively.
  • Among major industry segments, the 2% growth in MS assets in the third quarter compares to a 1% gain for Money Market Funds, a less than 1% increase for Exchange Traded Funds, and a 1% decline for Long Term Mutual Funds.

Platform Development: Tracking the Response to the Demand for Goals-Based Advice

This issue of MMI Central also examines the shift toward goals-based advice, currently one of the most talked about trends in the advisory industry. MMI and Dover Financial Research conducted proprietary research to gauge the extent to which sponsor firms are developing advice delivery platforms that include an up-front financial planning process, portfolio construction and the operational infrastructure needed to support the investment implementation process itself. 

Sponsor firms were fairly evenly split when asked, “Is your firm actively realigning the organization to better support goals-based advice delivery?” Half of the firms surveyed indicated they are reorganizing to support goals-based advice, and half are not. When sponsors were asked which piece of the advice delivery process their firms are most focused on, the top priority was the consolidation of the platform to support goals-based solutions followed by bundled solutions and streamlining the process. The responses share a common theme of enhancing and maximizing the existing infrastructure, rather than implementing wholesale change across the entire advice delivery platform.

Some aspects of goals-based advice delivery, however, do demand wholesale change, and the survey addressed one of the most profound transformations that platforms face – developing an automated goals-based front-end planning tool that provides a direct link between the financial planning done by advisors and the implementation of portfolios on the platform. This is considered a critical aspect of goals-based advice delivery, and in response to a question asking how far along the respondent’s firm is in implementing an automated goals-based front-end financial planning tool, 50% of those surveyed reported that goals-based planning is linked to portfolios while 40% said they were doing goals-based planning but have no automated link. The remaining 10% reported that this linkage is not in high demand by advisors.  

Download this Summary.

Download the full report (member access required).

MMI Central provides a detailed quantitative overview of the MS marketplace. The update includes sizing of the marketplace and its underlying components – mutual fund advisory programs, traditional SMA programs, multi-discipline programs, ETF programs, and UMA platforms, as well as other advisory program types. It also ranks sponsor firms and asset managers across key segments of the industry and analyzes data and trends affecting both sponsor firms and asset managers. Finally, the publication highlights emerging themes and explores areas of special interest to MMI members.