Separately managed accounts are a rapidly growing segment of the financial industry, encompassing an estimated $620 billion in assets under management as of mid-2005, according to the Money Management Institute of Washington, D.C., a nationwide association of portfolio managers and sponsors of investment consulting programs.
To get a clearer picture of how banks are helping to drive that growth, the Money Management Institute (MMI) asked Dover Financial Research of Boston to examine the ways banks sell separately managed accounts. The study's findings are published in the institute's report "The State of SMA Distribution Through Bank Trust Divisions" and are the subject of this special section.
The term "separately managed accounts" has traditionally referred to brokerage-based individual investment accounts that charge asset-based fees. These accounts offer investors customized financial advice and are managed by independent money managers. When looking at banks, the Money Management Institute currently defines the term as all separately managed accounts that are not part of a bank's existing proprietary trust or investment-only business. But with the industry growing and evolving rapidly, the institute believes this arbitrary division may become less meaningful and definitions may need to be expanded to encompass all separately managed accounts, regardless of their orientation.
MMI's report focuses specifically on bank trust divisions, which the authors believe are the best positioned among bank distribution channels to influence the separately managed account industry. The strength of bank trust operations lies in their ties to high net worth individuals and in their established distribution capabilities.
The report's findings are based on information gathered through both a Web-based survey and extensive interviews with executives from bank trust divisions, service providers, other major distributors, and asset managers. The Web survey was conducted at the end of 2004 among a cross-section of banks with $2 billion to $100 billion in assets.
It also examines the major challenges that bank trust divisions are facing as they pursue the market more aggressively. Those challenges include: properly positioning proprietary investment management, developing infrastructure, and pricing.
Banks and their vendors have made progress, and today's banking environment is far more receptive to separately managed account distribution than five years ago. But traditional cultural hurdles within banks remain. Until banks make significant headway in conquering the obstacles that hold them back, growth in the market will be incremental, MMI says.
This special section reports key findings of the Dover Financial Research study. First, it examines the competitive landscape of separately managed accounts. Then it reports Dover's analysis of survey results in three main areas: positioning of investment management, infrastructure and pricing.
