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Monday, August 12, 2002

2Q: Up or Down?

by: Tony Pennino

Assets for the separate accounts industry increased slightly during the second quarter from $413.29 billion to $417.14. Or did they? Separate managed account totals for the second quarter were at $409.7 billion, representing a drop in assets. The first figure comes from the Money Management Institute (MMI). The second comes from Cerulli Associates. So, which figure is the right one?

The difference no doubt lies in the methodology of the two firms. The MMI's numbers are based primarily on the results from the five major wirehouses: Merrill Lynch, Morgan Stanley, UBS PaineWebber, Prudential, and Salomon Smith Barney. The totals from other smaller firms are also taken into account for the report.

"We get our numbers directly from the five wirehouses, which represent a large majority of the business. We back into our industry wide numbers. And we go back and check with each firm that their numbers are correct. But we saw a very strong quarter from Merrill," Christopher Davis, executive director at the MMI, told the MutualFundWire.com.

"However you look at the numbers, this industry has been less affected by market volatility than other sectors of the financial services business," Bill Crager, executive vice president of EnvestnetPNC, told the MutualFundWire.com.

"More investors are moving into the separate acount space. For the third quarter, I think you'll see a lot of alienated investors seeking out separately managed account solutions," Crager added. "People are getting more conservative in their investment thinking. They are less interested in aggressive strategies."

"I think you will see a good strong third quarter for separately managed accounts," Davis continued. "Financial advisors are moving away from a transactional strategy ot a more holistic consulting one. An investor doesn't wake up in the morning and say, 'I want a separately managed account'. No, the investor says, 'I can't do this any more'. That's where this offering comes in. And consultants have to be there with a product to help them make a transition."

"Now, at a place like Merrill, maybe 10 percent of their network is actively pushing the separately managed account. But if they get even just another one percent to start using the service, then that is quite a significant number," the executive director added.

"In a difficult market period, this process provides a framework for the consultant and the client, working together, to remain focused on the client's long-term objectives and not react emotionally or inappropriately to short term market phenomena," Mark Pennington, partner and director of private advisory services at Lord Abbett, stated. "The discipline of the 'plan' helps the investor do what makes most sense, at all times -- based on what they seek to achieve over the long term."

Though there is some disagreement between the two organizations' figures, the two institutions have one thing in common. Both Cerulli and MMI note that separately managed accounts were relatively unscathed given the recent market volatility in relationship to the rest of financial services industry. Cerulli notes that the Wilshire 5000 dropped 12.5 percent in value for the same quarter.

Mutual fund firms can expect separately managed account execs to push more aggressively push their offerings, perhaps not to individual investors but to financial advisors. 

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