When insurance company John Hancock announced this week that it's outsourcing its separately managed accounts administration to JPMorgan, we saw this as a reflection of three trends: separately managed accounts have become very popular, good operations staff have become hard to find, and firms that experience growth in an investment area are tending to outsource operations for it.Why are separately managed accounts selling so well? "The baby boomers are coming of age, so they're rolling over their 401ks, IRAs and other instruments where they've had their savings growing," says Scot Knight, vice president of JPMorgan's Managed Account Solutions Group. "SMAs in general are a great tax-efficient investment vehicle in the market place. Because you own the shares, you can take advantage of tax harvesting that you can't with a regular mutual fund."
Job websites these days are full of ads for financial operations positions. "We're trying to add operations staff and it's harder than I would have thought," Knight concurs.
And partially because of the shortage of operations personnel and the growth in SMAs, more outsourcing deals are occurring. "This space is growing and the number of clients that we're outsourcing for is growing, not only in the SMA retail asset management space but we're also taking on sponsor clients and moving into the institutional space as well," Knight says. Clients already outsourcing SMA administration to JPMorgan's Managed Account Solutions Group include Charles Schwab Investment Management, Gartmore Global Investments and Lee Munder Capital Group.
JPMorgan is taking over John Hancock's existing SMA administration operation, which has been servicing 5,000 accounts with $1.6 billion in assets under management. "We're offering them new technology as well as experienced operations staff to take on and support the functions of the middle and back office around their SMAs," Knight says. JPMorgan uses the Vestmark platform. "We offer a low barrier to entry for new products they might want to roll out into the marketplace, it's an opportunity for them to scale their business more rapidly and more cost-effectively than they could on their own."
Although JPMorgan has no plans to bring John Hancock SMA operations staff into its facility, it's possible that it might hire some. "Because we're both in Boston, in the cases where it would be advantageous to work together like that, we'll keep an open mind," Knight says.