Hi Mark, Confess I haven't even focused on eMC yet as part of this Ashton Investment Opportunity but was surfing and came across this article. Is this the market eMC will dipping its toe into? (As for now I can't get past all the opportunity with UTTC)
Feature Stories & News MONEY MANAGEMENT
sponsored by
It's a wrap by Alexandra Alger
Content provided by Institutional Investor Magazine
Published on 12/1/2000
E.F. Hutton & Co. marketers introduced wrap accounts back in 1975,
during the ’70s bear
market, when product innovation was hardly commonplace. Providing
investment advice and
professional money management for a fixed annual fee, wrap accounts,
now marketed as
"managed" or "separate" accounts, have never been more popular.
E.F. Hutton is long gone, of course, but wraps have had an amazing
life. Assets in these
accounts should hit $700 billion by year-end, nearly triple what
they were in 1997, according
to Cerulli Associates. The increase is especially welcome at a time
when mutual fund asset
growth is slowing. For the first nine months of this year,
managed-account assets grew by 29
percent for the five biggest players: Merrill Lynch & Co., Morgan
Stanley Dean Witter,
PaineWebber, Prudential Securities and Salomon Smith Barney.
Wraps offer investors the flexibility to create their own portfolios
while avoiding the built-in
capital gains liabilities that come with traditional mutual fund
accounts. Most programs require a
$100,000 minimum investment, but some, including two of Salomon
Smith Barney’s, will
accept $50,000. While the wire houses dominate the managed-account
business, with a 70
percent market share, some upstarts are coming on strong. Malvern,
Pennsylvania’s
Lockwood Financial Group, which uses 1,000 independent financial
planners to bring in
business, has amassed $8.5 billion in assets in just four years.
Wells Fargo & Co. has garnered
$1 billion in assets in its two-year-old managed-account program,
which gives clients access to
40 outside money managers. Online vendors, such as WrapManager,
offer do-it-yourself
managed accounts.
Says Christopher Davis, executive director of the Money Management
Institute, a Washington,
D.C., trade group: "We stand at a delicious convergence. Investors
want something better than
mutual funds, and producers want to convert clients from
transaction-based to fee-based
services." Davis predicts that insurers and accounting firms will be
the next to fit managed
accounts into their portfolios of client services.
Meanwhile, mutual fund companies, mindful of the slowing growth of
their industry, are
scrambling to get into the managed-account business. A few, such as
Aim Management Group,
Dreyfus Corp. and MFS Investment Management, have already launched
their first investment
services through a small number of brokerages, and most of the big
firms are expected to
follow suit.
Mutual fund executives see managed accounts as nothing less than a
fundamental shift in how
individuals are investing their money. "Managed accounts are only a
fraction of the size of the
mutual fund market, but the growth rates are flip-flopping," says
Mark McMeans, president of
Aim Private Asset Management, a new division that will run the
Houston-based fund family’s
managed-account business. "The mutual fund industry is mature, and
we think this might literally
be where the industry is going."
At Boston-based MFS, executives recently noticed that they were
losing potential clients to
managed accounts. Bill Taylor, who is heading up a new MFS unit that
will handle managed
accounts, says that brokers were telling them: "We’re looking at
fee-based programs for our
clients. We wish you had something like that."
The competition is tough and will probably get tougher. Account fees
can only go down from
here, experts say. Posted rates can be as high as 3 percent of
assets annually, but clients
typically pay something less than 2 percent, depending on the size
of the account and the
client-broker relationship, says Paul Fullerton, an analyst at
Cerulli Associates. Clients with a
few million dollars to invest might pay not much more than 1
percent, less than the 1.42 percent
expense ratio for the average domestic equity mutual fund.
After managed-account fees are divvied up among all the players
involved, money managers
are left with roughly 50 basis points, far smaller than the typical
expense ratios for mutual funds.
However, according to fund companies, managed accounts should be
less costly to run than
mutual funds, in large part because managed accounts do not confront
the same set of
regulations. Regardless of how profitable the business is, says Russ
Alan Prince, a management
consultant in Shelton, Connecticut, fund companies have to be in the
game. Says Prince, "They
don’t have a choice." |
