There will be more room for managed-account platforms in the budgets of financial services institutions in coming years. According to a study released Monday by Needham, Mass.-based research firm TowerGroup, spending for managed account platforms will reach $439.2 Million by 2008.
Managed account platforms, otherwise known as turnkey asset management programs, provide technology and business-process outsourcing for sponsors that wish to offer managed accounts to retail investors. These platforms provide a wide range of services, including money manager selection and due diligence, adviser sales workflow and account opening, portfolio accounting and performance reporting, client billing, marketing support and training.
According to TowerGroup senior analyst Matt Schott, who authored the report, the rise in spending is directly related to the industry's shift in focus from commissions to assets under management. "Institutions that were a little slower to move in that direction are seeing the money that's going to managed accounts, mutual fund wrap type products and fee-based brokerage," he says.
With growth in the managed account assets on course to meet TowerGroup's projection of $1.1 trillion by 2007, these institutions are now concentrating on ways to provide managed accounts to investors. Because building a managed account platform in-house is an expensive, timely and labor-intensive project, institutions are also looking to vendors to help them set up shop. "Platform providers help institutions conquer the first challenge by giving them the turnkey program, technology infrastructure and a lot of the business process outsourcing," explains Schott. "If you go with a platform provider, you can likely get up and running in a couple of months ... if you try to develop a program like that in-house, it's going to take closer to a year," he says.
Schott adds that a surge in spending has its benefits. As managed account platform providers gain additional revenue, they should be able to reinvest a portion of those revenues into enhanced products. Consequently, financial-services institutions will have a wider range of services and products to choose from. A competitive playing field among vendors will also give institutions leverage for discounts across the board. Firms, too, will begin looking at how managed account platforms they've invested in can enable them to serve a broader need in the context of an overall wealth management offering. "You're already seeing this with the concept of the unified managed accounts, bringing different asset types into the equation, like alternative investments and annuity investments," says Schott. He predicts that investment advisers will eventually look to these platforms to help them look at different accounts (i.e., accounts in the individuals name, IRA accounts, joint accounts with a spouse and even kids' accounts), provide some level of oversight across all of them, and ultimately manage them as one total portfolio with a variety of goals and needs. "I don't know that any one institution or any one of these platforms has all the answers, but I think a lot of them are very much moving in the right direction," he says.