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Advice is Key to Getting On Advisers' SMA Platforms

WASHINGTON-Financial advisers seek service above all else when it comes to picking separately managed account products for their platforms, according to panelists at the Money Management Institute's 10th Annual Conference here earlier this month.

In fact, in the shove for SMA shelf space, valuable advice and tools may be more important than innovative product mixes or lower wrap fees.

"I need-I want-someone who will step back from the specificity of the product and will talk to me about my practice, my clients," said Dickinson J. Miller, a senior financial adviser with Ameriprise Financial Services, of Minneapolis. Specifically, he said, advisers are looking for support, tools and training to help build their practices.

Details, such as whether the product offers open architecture and includes alternative asset classes, become secondary, said James Tracy, an executive vice president and director at Smith Barney Consulting Group in New York.

"What they want is best in class," he said-products that are easy to explain to clients, transparent and come with added services, such as adviser education on topics such as estate planning, philanthropy, starting a second business, or helping finance a child's education.

"We are all going to be asked to validate what our advice is worth," Tracy said.

For companies that can effectively support adviser needs, it can be worth a lot, said Kevin Keefe, senior vice president of research at LPL Financial of Boston. After all, 85% of advisers of affluent clients said that their clients would prefer to use one financial services company for all of their needs, he said. It's what Frank Campanale, president of Campanale Consulting Group in Birmingham, Mich., calls the "financial services bear hug."

But not all advice is equal, Tracy said. "Our job is to find the performance," said John Scully, director of the consulting group for Rockville, Md.-based Lydian Wealth Management. "We're not going to beat the benchmark if we're closet indexers," Miller added.

"The cornerstone of what we do is allocation," said Christopher W. Brown, a financial adviser with A.G. Edwards and vice president of investments at the Brown/Miller Financial Group in Washington. Scully said allocation is the driving force behind 95% of the returns he garners for clients.

Rather than UMAs or alternative products such as long/short 130/30 funds, which none of the panelists employ advisers said that the true value-added elements are those things that add to the worth of their practices.

For Scully, that might mean a white paper or a visit from a portfolio manager offering a different outlook. "Someone knowledgeable and poised enough that I can put them in front of a client: that is the litmus test for me," Brown said.

W. Jeffrey Carlton, a senior vice president for wealth management at The Carlton Group, in McLean, Va., also looks for market commentary, as well as analytical tools. "I want to know which product is selling most and which is your most liquidated investment," he said. "Nine times out of 10, I'm going to go to the most liquidated as a contrarian," Carlton said.

Advisers said their clients seek simplicity, so the companies that can help them streamline their offerings in the most transparent way will come out ahead of the competition. Derivatives and alternative products often only muddle the mix.

Similarly, advisers prefer managed products that are simple for their clients, the end users, to invest in. "It's how we pull it all together: one contract, one account and one price," Tracy said.

Clients also want to keep as much of their gains as possible, which makes tax-efficient products especially attractive, Carlton added.

Advisers' clients also want to feel as though they have a personal relationship with their planner, so tools and technology that enable advisers to customize each product to their clients' tastes will most likely get on the shelf above those that are more rigidly structured.

And when all else is equal, advisers are likely to choose the brand with the reputation their client knows.

"If I'm working with a client who doesn't know me very well, brand recognition helps," Carlton said.

Cutting corners to keep down fees on separately managed accounts will undoubtedly result in lower service, and therefore less business, according to Keefe. Likewise, setting prices artificially low, hoping to make up the revenue shortfall through mutual fund sales is "dangerous," he said.

"The SMA should always be the highest-quality product we can offer," Keefe continued. Pricing them accordingly helps convey that message, he said.

Advisers agreed that investors are price sensitive, but transparency, simplicity, and a promise of performance weigh more heavily on their minds.

"The ability to own all types of assets: that's what the client wants, that's what a financial adviser wants," Tracy said. "It is incumbent upon us to give it to them."

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