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SMA Bigwigs Boil Down Client Issues


BOSTON -- In order to better translate client needs into action, separate account managers and sponsors must capitalize on strategic opportunities in the marketplace, according to Bob Cuhna, a principal at Market Metrics, a research firm that works with managed account providers to help them grow sales through financial advisers.

Assets held in separately managed accounts have risen at a good clip in recent years due to the increasing awareness about fee-based compensation, customization and tax efficiency. However, in a presentation at Money Management Institute's annual convention here, Cuhna noted that the biggest reason the industry isn't growing more rapidly is because non-producers are not convinced by performance.

"There is a significant opportunity to serve advisers better," Cuhna told conference attendees.

For example, he sees that satisfaction with performance varies widely and that despite some recent improvements in field sales support, many producers still report sporadic sales contracts. The keys to gaining market share, in his opinion, center on three main factors: marketing materials, portfolio management responsiveness and telephone relationships.

He recommended that SMA firms use marketing materials that have a concise and consistent value proposition, one that they've tested on clients. Another enhancement would be the use of more informative portfolio updates and a listing of the portfolio managers' credentials. Marketing literature should also include a representative client list and a model portfolio, Cuhna said.

With respect to portfolio management responsiveness, he suggested that managers make themselves more available and give the client direct access. He believes that a good place to start is by offering a rapid response time when returning phone calls. The managers should foster a relationship based on proactive communication using tools such as newsletters, e-mail and updates on changes to the portfolio.

The third section of his roadmap for successful growth is strong outbound telephone communication. In examining sales support functionality at both mutual funds and SMAs, Cuhna found that funds have an average sales force of 73 compared to only 34 in the SMA business. The average number of phone reps at fund shops was 86 compared to just 24 in the managed account space. The ratio between phone reps and field reps for funds was 1.2, whereas SMAs came in at 0.7, according to the study. One of his most important findings was that consumers' perception of investment performance improved with the number of visits from the field sales team.

When advisers choose investment managers for their clients, they tend to focus on a number of critical attributes. The most obvious quality they look for is investment performance-that's their bread and butter. But Cuhna cautioned conference attendees not to focus solely on investment performance for fear they might neglect client needs. Keeping a scorecard or self-evaluation is a great way to do what's best for the clients. First, firms need to ask themselves, "What do they want?" Next, firms must identify their strengths and weaknesses and figure out what needs to be improved. Lastly, they need to determine who stands to gain or lose from their efforts.

Judy Rice, president of Prudential Investments, also offered her perspective on how to better serve the clients' needs, particularly the mass affluent segment. She also noted that the industry must do a better job of providing tools for advisers. Further, given that "the nature of advice has evolved," the industry should move toward a more holistic approach, one that focuses on selection and recommendation of the manager as well as training and education, she said. "All clients can't be treated similarly." She added that in order to achieve a true consultative process, providers have to implement a system of checks and balances.

Peter Cieszko, head of U.S. retail & high-net-worth asset management at Citigroup Asset Management, voiced his concerns as well, stressing the importance of connecting sponsors, managers and advisers. The most critical step going forward, he noted, was "listening to tomorrow's clients as well as today's to plan for the future," a mantra he repeated several times so that it would have a more meaningful effect.

"How are you different, and who cares?" he then asked the audience. He followed that up by discussing the changing landscape of the business including hot topics such as outsourcing, overlay management, unified managed accounts and multi-discipline accounts. "The winners will be those who are most responsive to a changing environment."

He concluded his address by highlighting two things attendees should take away from the convention. The first task was to encourage others to get involved, reminding members that an "open dialogue is the only way to foster creativity." Secondly, he urged them to bring back one actionable idea to implement at their respective firms, one with a discipline and a system.

Meanwhile, at other conference sessions, panelists discussed regulatory concerns. The most common problems with the separately managed account space are related to the disclosure of fees and expenses, compensation, soft-dollar arrangements and directed brokerage, said Gene Gohlke, associate director of the SEC's office of compliance inspections and examinations. Best execution and trading issues were also high on the list. Gohlke emphasized the importance of having written policies and procedures in place that are consistent with disclosure to clients. "When firms don't find or report their problems, that's when we're going to take a closer look," he said. He added that firms should be evaluating every trade to make sure procedures are being followed.

"If you've got 100% compliance, somebody's lying," said Gerry Lins, general counsel at ING Investment Management. Allen Williamson, group president, managed assets at Nuveen Investments, pointed out that there are regulatory issues that have yet to surface, although he doesn't anticipate them being significant. Still, he warned that New York Attorney General Eliot Spitzer is "sniffing for smoke ahead of the alarms."

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