Asset managers are unleashing a new wave of separately managed accounts (SMAs) in response to financial advisors’ increasing desire to capitalize on an improved client experience and remain competitive in a crowded marketplace, according to the latest Cerulli Edge—U.S. Managed Accounts Edition.

New managed account offerings are aided by advisors’ desire to deliver a great degree of customization for their clients, an objective that is best achieved through the SMA wrapper. There are also additional opportunities for advisors to take advantage of tax-loss harvesting within a SMA portfolio, or to capitalize on other customization trends (i.e., environmental, social, and governance). Advances in managed account technology have also propelled SMAs downmarket, allowing advisors serving investors across wealth tiers to implement these products with their clients.

Asset managers developing model-delivered separate accounts will likely find a receptive audience among managed account sponsors. A Cerulli survey in 2020 found that 41% of managed account sponsors were interested in adding model-delivered separate accounts to their platform from outside asset managers. “With their cost-effectiveness, and the improved client experience of the unified managed account, we anticipate that this demand for model-delivered products will continue to garner interest from sponsors, and asset managers will continue to find a friendly market,” says Matt Belnap, senior analyst.

However, while financial advisors and their clients may be poised to leverage SMAs in coming years, Cerulli notes that launching these products is not a panacea for asset managers. As more asset managers expand their managed account offerings and capabilities, any residual differentiation benefit fades. “Asset managers must work to distinguish their offerings, now in an increasingly crowded marketplace,” says Belnap. “Fees will continue to compress, as sponsors and advisors push to squeeze additional basis points out of their asset management partners. Asset managers must work to make sure their technology is continuously up to date, and stay on top of new trends and developments, such as direct indexing.”