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Managed Accounts Expected To Grow Rapidly Overseas

Assets in managed accounts outside the U.S. will more than double in the next four years, according to a new report.

In a study titled "International Managed Accounts," the London office of Boston-based Cerulli Associates said it expects managed account assets in Europe, Asia, Canada and Australia to grow from the current level of $68.8 billion to $83.9 billion by year end. By 2004, Cerulli expects total assets in managed accounts in these regions to reach $132.1 billion and, by 2006, to surpass $207 billion.

Cerulli expects the managed account business outside the U.S. to grow at an annual rate of 25% through 2006, compared to the U.S. growth rate of 31% during the four years ending December 2001. Cerulli said the report is its first analysis of managed account programs outside the U.S.

Meanwhile, recent figures from the Money Management Institute, the key U.S. industry group for managed accounts, indicate that the domestic managed account business continues to grow at a strong pace. MMI estimates as of the end of 2001, assets in domestic managed accounts totaled $415.5 billion, up 12% from the third quarter.

Cerulli said "mass affluent" investors, who make minimum average investments between $35,000 and $420,000, comprise the primary worldwide market for separately managed accounts. The firm defines these investors as those with as much as $1 million in investable assets.

Charlie Bevis, a senior editor at Financial Research Corp. of Boston, said that the projected popularity of managed accounts overseas is based on two factors: the rise of fee-based business models among advisers in Europe, Asia and other regions, and an increasing awareness of the products.

While fee-based advisers are prominent in the U.S., other regions are only now adopting the idea, Bevis said. In addition, he said managed accounts fit well with that business model, mainly because the products are built around consultant-like relationships with clients.

It's "a fortuitous confluence of two trends that is magnifying the product a little more than it would otherwise," he said. "Over there, things are changing. I think this product is getting swept up in those changes."

Cerulli, meanwhile, said the growth will be driven by an increasing number of knowledgeable, wealthy investors overseas, who make more sophisticated investing decisions. The firm also cited the increasing prevalence of fee-based advice models among advisors.

Shiv Taneja, a senior analyst in Cerulli's London office, said the tax advantages of managed accounts are also driving their popularity, particularly in Europe.

For the purposes of its report, Cerulli defined managed accounts as two types of investment products: a mutual fund advisory program, which allocates assets across multiple mutual funds, and a separate account consultant program, in which unaffiliated institutional money managers place assets in individualized accounts.

Cerulli said that as of 2001, mutual fund advisory programs outside the U.S. held $25.5 billion and separate account consultant programs held $43.4 billion.

While in the U.S. brokerages distribute 70% of all managed accounts, distribution models throughout the world differ markedly, Cerulli said. Bank-owned brokerages are the primary distributors of managed accounts in Canada, while in the U.K. private client stockbrokers and asset management firms are the key players.

In Australia, large master trust platforms are the primary distributors, while in Europe, private banks are the main distributors. In Asia, where no one distributor has yet emerged, Cerulli expects private banks and brokers to become the key sellers of managed accounts.

Although many experts expect overseas managed account business to grow rapidly, fund consultant Burt Greenwald of Philadelphia said divergent distribution models will likely hamper growth of the business internationally.