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Rating:SAs Distinguish Themselves from MFs Not Rated 3.0 Email Routing List Email & Route  Print Print
Tuesday, March 12, 2002

SAs Distinguish Themselves from MFs

Reported by Tony Pennino

The recent downturn in the economy has not been kind to mutual funds. Assets have shrunk, and there are new products out there to attract the attention of investors, particularly high-net-worth individuals. One such product gaining increasing attention is the separate account.

Now, The Money Management Institute (MMI) has released a new white paper entitled "Customized Care: Managing Wealth through Managed Accounts". The paper analyzes those features of wrap accounts that investors find appealing and how the product may be differentiated from mutual funds.

The report states in its introduction, "The flexibility of separately managed accounts addresses the increasingly complex needs of high net worth individuals. These investors frequently have specific situations that must be considered to ensure their financial health and they prudently seek the advice of investment management consultants in that regard." The report goes on to equate the investment management consultant as a kind of team leader acting for the benefit of the client.

"Investors are becoming less and less satisfied with mass-marketed investment vehicles, such as variable annuities and mutual funds," Christopher Davis, executive director at MMI, told the MutualFundWire.com. "Investors want the customization that managed accounts offer. They want something tailored specifically to their individual goals, risk tolerance, and needs."

"Mutual funds do not provide the level of customization capabilities necessary for most high net worth individuals since they consist of a pooling of assets which is subject to outside influences that are beyond the portfolio manager's control," the report further contends.

"We feel that the last couple of years have show the do-it-yourself investors that they are not equipped to run a portfolio. When dollars were hemorrhaging from mass market investment vehicles, wrap accounts remained constant. The do-it-yourself investors can have portfolios modeled to their exact needs, but there is a trained financial advisor at the helm to guide them to the best and most diversified portfolio," Davis continued.

For Davis, the hallmark of the separate account is the skilled financial advisor that acts as intermediary and the flexibility that advisor can provide.

The executive expects that the separate account business will continue to grow. While there will be greater public awareness of separate accounts, Davis believes that the bulk of the business will be driven by the financial advisors. He contends that more and more advisors will be offering a separate account product to a larger number of clients.

He also sees more vendors diving into the market segment. "Data providers, infrastructure firms, everyone wants to get in one the act." MMI will continue to issue white papers this year and work to increase public awareness.

Mutual fund firms seeking to protect their equity investment vehicles must recognize this encroachment from the managed account front and respond to it. In terms of public perception, mutual funds have lost some of their luster. Mutual fund firms must meet this challenge with aggressive marketing and cogent arguments as to the benefits of the products.

The report is currently available for free from Jim Marren at TorranceCo: 212-521-5210. 

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