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Managed Accounts and the Battle Over Discretion

October 11, 2023

Who should own portfolio oversight?

Portfolio discretion is a top priority for managed account sponsors. Sponsor firms are encouraging advisors to outsource portfolio discretion due to compliance concerns such as underperformance and reverse churning, along with the belief that advisors can more effectively spend time on other portions of their business. However, this sentiment is not necessarily widely shared within the advisor community.

In this white paper, Cerulli looks at historical portfolio performance and how it may impact the decisions that sponsor firms make when it comes to advisor discretion.

Key Highlights

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Home-Office Portfolios Outperform Advisor-Steered

Home-office discretionary portfolios have indeed consistently outperformed advisor- and client-directed portfolios. However, the difference may not be compelling enough to persuade advisors to move to a home-office-directed solution, particularly if they are confident in their portfolio management abilities.

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Sponsor Firms Address RPM Programs

Roughly one-quarter of managed account sponsor firms are comfortable with their rep-as-portfolio-manager (RPM) programs the way they are. The rest would prefer that their advisors outsource to a home-office-driven solution. Many of these firms are taking steps to move them toward these offerings.

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Clients Prefer a Dedicated Team

Just 30% of affluent investors believe their own individual advisors are best suited for these portfolio management responsibilities, while 40% believe a dedicated team at the advisor’s firm would be a better option.

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