Rewards and risks of managed account programs

Continued growth and a strategic priority

Managed investment account programs are poised for continued growth as several financial institutions have announced plans to make these programs a strategic priority going forward, partially in reaction to the Department of Labor’s (DOL) Fiduciary rule. As seen in the figure below, a 2017 Deloitte/Securities Industry and Financial Markets Association (SIFMA) survey shows that, prior to the DOL rule, most survey participants supported an open choice platform, allowing their advisors significant flexibility in offering brokerage or advisory programs to their retirement clients.

But since June 9, 2017, when the DOL rule became applicable, many firms have become more restrictive in offering brokerage services to retirement clients while making fee-based accounts their primary or preferred option. While survey responses were specific to retirement clients, some survey participants indicated anecdotally that they anticipated applying the same business models to their non-retirement clients as well.

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The possible rewards of managed investment account programs

Managed investment accounts have the potential to thrive as a core engine of growth for the wealth management industry in the face of widespread disruption to the traditional brokerage service model offering. A few example areas that may provide growth include:

• A foundation for a fiduciary future

• A response to robo-advisors

• A scalable solution

• A margin maintainer

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The potential risks of managed account programs

As discussed above, managed investment account programs have many attributes that have proven attractive to clients. Therefore, these programs have the potential to be a leading source of growth and revenue for wealth managers. However, to fully maximize this opportunity, wealth managers must carefully manage both the operational and regulatory risks that are inherent in offering these programs. Some potential risks include:

• Increasing regulatory focus
• Say what you do and do what you say
• Measure twice and bill once
• Concentrate on conflicts

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The core engine of growth

We believe that managed investment account programs have the potential to serve as the core engine of growth for wealth management firms and provide a powerful antidote to the disruption facing the industry. However, wealth management firms will only be able to fully realize the managed account opportunity if they rigorously manage the many risks that managed account programs present. By doing so, wealth managers can harness an engine that can meet the needs of their clients, advisers, and shareholders, allowing them to take the lead in the wealth management industry.

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