Rep-as-adviser managed accounts have been steadily growing in popularity and will continue to do so in the short-term, but Cerulli Associates sees growth dampening further out because of the account's nondiscretionary nature.

Rep-as-adviser accounts are nondiscretionary advisory accounts where the adviser acts as a fiduciary and provides advice, but must get approval from the client for any investment changes.

On Monday Cerulli released new managed accounts research revealing that the number of client accounts in rep-as-adviser programs rose 29% from 2007, through yearend 2009, even during the market downturn. But because advisers are required to contact clients every time a change is made to their portfolio, the account management environment is thought to be highly inefficient. Because of issues of capacity and scalability, Cerulli believes that the long-term growth will not keep pace with 2010 projections of double-digit growth for the managed account industry as a whole.

While Cerulli analysts forecast that not all managed account programs stand to benefit equally from the market turnaround, "during the market downturn, home-office-driven programs took the hardest hit, and rep-driven programs thrived," the firm said in a press release.

"However, Cerulli expects that with continued market improvement the systematically diversified home-office-driven programs will come back in favor and the growth of rep-driven programs will slow."

Cerulli analysts are also lowering their previous expectations of unified managed account programs because of a lack of flows into these programs during 2008 and the beginning of 2009. UMA programs had inflows of only $1.7 billion during 2008, Cerulli said, second worst only to separate account programs, whereas other programs (namely rep-as-adviser and rep-as-portfolio manager) saw inflows of nearly $50 billion.

Geoffrey Bobroff of Bobroff Consulting in East Greenwich, R.I., said he does not expect rep-as-adviser managed accounts to grow considerably for several reasons.

First, the fixed fees on these accounts are lower, since they are nondiscretionary, yet the interaction with the client needs to be higher. In addition, the largest consumers of these products are baby boomers, who tend to delegate their investment decisions. Bobroff said it would be "logical to see boomers move to a discretionary-based managed account, but many firms don't want to operate these accounts on a discretionary basis because it means they are liable."

Bobroff sees the success of rep-as-adviser managed accounts as subject to the customer's appetite. "What is the customer willing to do? How active does the customer want to be?"

While some firms don't want the liability and have been very cautious, it is the firms that will offer both discretionary and nondiscretionary advisory accounts that scoop up more of the clients, Bobroff said.

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