Managed Account Sponsors Re-Evaluate Rep-As-Portfolio-Manager Programs

July 27, 2023 — Boston

Concerns over time and compliance are among the top reasons cited; however, shifting discretion from advisor to home office will take time

Managed account sponsors are re-evaluating their rep-as-portfolio-manager (RPM) programs and coaxing advisors toward home-office discretion, according to The Cerulli Report—U.S. Managed Accounts 2023: Decisions About Discretion. Firms considering altering their RPM programs will need to effectively communicate this decision to clients and advisors to stem attrition.

The percentage of sponsor firms with a formal process for removing discretion has swelled to more than half (52%) in 2023, with an additional 16% considering this step. Furthermore, nearly one-third (27%) of managed account sponsors are making modifications to their RPM programs to align them with their current business objectives, while another 15% are actively encouraging advisors to give up portfolio discretion.

According to the research, the belief that advisor time is better spent on other activities (69%) is the biggest concern sponsors have with RPM programs. The rationale behind this is advisors who spend less time focused on portfolio construction will be more productive in other areas of their business, namely bringing new clients to the firm, increasing assets under management, and growing productivity.

“Outsourcing to a home office or third-party solution can be beneficial to an advisor,” says Michael Manning, analyst. “The movement toward holistic financial planning or being a ‘lifetime financial coach’ inherently means less focus on individual security selection and more focus on creating a plan and making sure the client is on track. As more advisors embrace this philosophy, the need to act as a portfolio manager will become less important.”

The second concern with RPM programs expressed by sponsors centers around compliance (66%). In considering compliance ramifications, sponsor executives are most concerned with consistent underperformance (82%). Additionally, Cerulli finds that advisor performance varied more widely than that of home office and client discretionary programs. Over three-, five-, and 10-year periods, advisory programs have the highest dispersion (average difference between best- and worst-performing programs each quarter). Straying from investment policy statements (76%) and lack of investment review (70%) are additional sponsor compliance concerns.

A large cadre of advisors (nearly 60%) define portfolio construction and security selection as a core tenet of their business. While Cerulli believes the logic behind home-office outsourcing is strong, many sponsors will continue to support RPM programs for the foreseeable future. In this case, Cerulli recommends that sponsors focus on revising advisor messaging and provide better portfolio construction support for advisors—a priority for 52% of sponsors.

“Sponsor firms may ultimately be better served modifying these programs to better fit with their overall strategy, and giving those advisors who want to take discretion better tools to be effective PMs than trying to remove advisor discretion entirely,” says Manning. “Like the ‘death’ of the mutual fund, the march away from advisor discretion will be a long one,” he concludes.

Looking for More Information?

Let's Connect

Looking for More Information?

For additional information regarding this material or to get in touch with our press team, please submit the below form.

Note to editors

These findings and more are from The Cerulli Report—U.S. Managed Accounts 2023: Decisions About Discretion.

We use cookies to improve your site experience, distinguish you from other users and support the marketing of our services. These cookies may store your personal information. By continuing to use our website, you agree to the storing of cookies on your device. For more information, please visit our Privacy Notice.