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SMAs Bolster Offerings, Expand Platforms


Separately managed account providers have been making a number of adjustments lately: bolstering and tweaking product offerings, pruning prices, expanding technology platforms and reinvigorating relationships.

Brinker Capital of King of Prussia, Pa., has tinkered with the nearly $4 billion managed account platform that it offers to some 120 financial advisers, predominantly through independent and regional broker/dealers and insurance company brokerage firms.

Last month, Brinker combined its nine-year-old Destinations mutual fund and ProGen in-house managed account investment advisory and consulting programs, so that it can serve both markets from one platform. "One client may have $45 million, but you don't want to say no to his kid with $170,000 to invest," explained John Coyne, president of Brinker. "We are the firm trying to be the intimate partner with the adviser."

That unification came just a month after Brinker dramatically cut the fees on its Destinations fund program from 50 basis points to 20 basis points to appeal to the "fee-sensitive" set. Although it trimmed fees, it simultaneously bolstered its SMA offerings, adding an index-based large core strategy and a real estate investment trust (REIT). The REIT offering was added because of the sector's negative correlation to stocks and bonds, Coyne said.

From a performance standpoint, Brinker's entree into the REIT sector may prove difficult, at least over the short run. Some analysts predict the REIT market may have peaked. In fact, REITS have recently plummeted on concerns over rising interest rates, although REIT mutual funds returned 26.2% during 2003 and 11.9% during the first quarter of 2004, according to Lipper.

In addition, Brinker isn't interested in providing just the technological infrastructure to facilitate SMA and mutual fund management to advisers. Nor is it interested in allowing advisers to cherry-pick specific functions, such as compliance, Coyne said.

Instead, Brinker is sticking to its knitting as the "adviser's adviser," by focusing on assisting executives in this channel, especially independent advisers who may not have the resources of the larger firms, to be conversant in estate planning, insurance and a host of other areas, Coyne noted.

In contrast, high tech is exactly where PFPC Managed Account Services of Wilmington, Del., formerly known as AdvisorPort, is focusing its efforts. Next month, PFPC is launching a new "model management" component of its separately managed account tech platform, geared toward those advisers or reps who also serve as portfolio managers for clients, and want to manage accounts against asset allocation models they have created, or those recommended by their firm.

Advisers will select among various filters, compare all of their accounts to designated models, then adjust accounts, positions and sector weightings as necessary. The new functionality can also flag non-permissioned trades, and excessive cash positions, such as where new money has been received but not yet deployed.

The ability to efficiently manage accounts in a tight compliance environment has become much more important, said Greg Horn, senior vice president and managing director of PFPC Managed Account Services, and founder of AdvisorPort. Although the industry has moved toward fee-based accounts that have put the adviser and the client on the same side of the table, the NASD has expressed new concerns over a lack of proper reallocation, born out of the disappearance of commission-generating transactions, Horn added.

PFPC considers its sweet spot as the mid-to-larger size regional broker/dealers, and large insurance companies with national footprints, as well as independent RIAs.

Unified' Partnership

Meanwhile, Placemark Investment Services of Wellesley, Mass., has expanded its relationship with CheckFree Investment Services of Jersey City, N.J. The two will integrate more closely Placemark's overlay portfolio management with CheckFree's accounting system to allow SMA program sponsors to implement a unified managed account (UMA) platform and add mutual funds, ETFs and alternative investments.

The joint venture allows Placemark to access 300 clients already using CheckFree's services, and allows CheckFree to tap into those clients using Placemark's investment management services.

The two firms admit they have already worked together for some clients and have jointly signed three new sponsors. "Partnering with them was a natural for us," said Lee Chertavian, chairman and CEO of Placemark. Providing a turnkey way to have a unified managed account allows "for the realization of the promises separately managed accounts have made," said Hilary Fiorella, vice president of marketing at CheckFree. "UMAs are the next evolution of the process of SMAs."

There's no debate. UMAs are the must-have item on everyone's shopping list this spring. "UMAs are the biggest trend we are seeing," confirmed Mike Evans, vice president and director of separate account research at Financial Research Corp. of Boston. While bigger firms will build their own UMA platforms and infrastructure, like Smith Barney has done, for smaller firms it really "doesn't pay to do anything but rent someone else's UMA platform," he added.

Kelmoore Investment Co. of Palo Alto, Calif., which manages three proprietary mutual funds as well as separately managed accounts, all under a covered call option strategy, has gone "green" this spring; the firm has just added a prefabricated environmentally responsible "Redwood Account" managed account option that screens out investments in companies that harm the environment. The firm also offers three managed account models in its Signature Series that graduate from aggressive ("Empire Account") to more conservative ("Golden Gate").

Kelmoore believes socially responsible investors maintain their positions for longer periods than other types of investors, said Matthew Kelmon, president and head portfolio manager at Kelmoore.

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