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Rating:For Some, A World Without Mutual Funds Not Rated 5.0 Email Routing List Email & Route  Print Print
Tuesday, September 7, 2004

For Some, A World Without Mutual Funds

Reported by Theresa Sim

Money management may be going full circle, thanks to a new solution from SunGard Advisor Technologies.

The services and software provider is making a bet that mutual funds and best-of-breed separately managed accounts have seen their heyday. What's next on the horizon? SunGard is putting its money behind its Unified Overlay Management Solution, what it bills as the next generation of separately managed accounts.

With its overlay management solution, SunGard retains the idea behind separately managed accounts, but changes the technology supporting it.

Unlike traditional separately managed accounts or what it calls sleeve-based separately managed accounts, which keep accounts in silos by manager, an overlay solution pushes integration of accounts one step further -- into money management itself. Clients can choose from money management portfolios that SunGard has researched and vetted, and provides on its platform.

"Overlay management is a customized investment vehicle that coordinates the three dimension of portfolio management -- return, risk and taxes. And SunGard provides financial institutions with access to money manager models and technology to …implement this…solution," stated George Myers, executive vice president of SunGard Asset Management Systems.

Benefits include advisors' enhanced ability to personalize a client's holdings and reduced infrastructure costs. Unified management of accounts prevents some trading costs, unintended concentrations in holdings, and enhances management of each client's tax issues.

Advisors, however, will not be able to track and measure actual account performance, a potentially large downside.

Just how far downmarket can SunGard and its clients offer the product? Although Mike Winkel, president of SunGard Advisor Technologies, was hesitant to pinpoint an asset range, infrastructure costs for the overlay product will be less than 40 to 50 basis points, SunGard's estimates for sleeve and traditional SMA infrastructure costs.

As for the overlay management itself, clients can choose to be the overlay manager or to outsource the management using a third party. Advisors can also custody the assets themselves and privately label the SunGard solution.

What will become of the money managers themselves? Provided SunGard succeeds in its solution, the company could be strategically placed in the middle of clients and money managers. If SunGard holds control over which model portfolios make it on to their platform, money managers could face a future where they face more competitive fees and contract terms.

SunGard has thus far selected money managers based on the work of its internal due diligence team, say Winkel, Myers and David Ferry of SunGard Wealth Management Services.

The commoditization of money managers could also lead to disadvantages for SunGard itself. Without retail brands and money managers in the limelight, marketing the solution (and the model portfolios offered) could be more difficult, a downside pointed out by SunGard executives.

What is the bottom line for fund companies?

With separately managed accounts growing cheaper, fund companies may see their most profitable clients flee for separately managed account higher ground, leaving the least profitable customers, at the same time that money managing undergoes profit pressure. It may be time to tighten the belt buckle. 

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