At the core of the relationship between an investment advisor and client is trust, making the past three years especially trying.

As a result, money has fled the market and headed for the sidelines. According to TowerGroup, over the last five years, the assets in cash and cash-equivalent accounts rose 72% from $3.6 trillion to $6.2 trillion. But that money can't sit collecting less than 1% forever.

Dennis Ceru, director of retail brokerage and investing at TowerGroup, said he believes that the rise of separately managed accounts will have a big role in luring investors back into the market and rebuilding trust. He estimates that assets in SMAs will grow at a compound annual rate of 18.5%, total assets from $400 billion in 2002 to $1.1 trillion in 2007.

Mark Halverson, a partner in the Chicago office of Accenture, said the growing focus on investment advice - which includes offering products from other financial firms - goes a long way toward proving the adviser has the client's needs at heart. "It's easier to build trust if you're offering products that are not your own. It feels better to clients. It feels like it's the right product for them," he said.

Marketing campaigns will also play a large role in rebuilding trust, Halverson added. High-profile, brand names that focus their messages on trust and integrity - even if they have suffered some image tarnishing - will have a leg up on smaller players that don't have the ad budgets to get the word out.

Mutual fund companies that think all of this cash on the sidelines is going to come rushing back in, are going to see banks give them a run for their money. Banks are working hard to convince investors to use their brokerage arms when it comes time to shift from deposit-based accounts to the capital markets. Through the end of the first quarter of 2003, the top 20 banks in the U.S. saw deposits grow 11.3% year-over-year, and they don't want to see all that growth walk out the door as soon as the markets start to rebound. "Banks have lost assets twice. Once in the 1970s to the mutual funds, and again in the 1990s during the bull market," Ceru said. "They've seen their deposit base increase," and they don't want to lose it again.

Oppenheimer SMA Unit Employs CheckFree M-Pact

OFI Private Investments, a subsidiary of OppenheimerFunds, has selected CheckFree Corp.'s separately managed accounts Web application, M-Pact. The open-architecture software handles proposals, sales and investment management and is compatible with the numerous platforms that broker/dealers and registered investment advisers use to sell separately managed accounts. In addition, clients can private label services through M-Pact. Oppenheimer had already been using CheckFree's APL, its trading and portfolio management tool.

"Opening access to better analytics of manager data and manager blends will help us sell our success story more persuasively," said Jennifer Sexton, VP and director of managed accounts at OFI. M-Pact's data and tools are designed to help managers to sell more accounts and better service their sponsor relationships.

Copyright 2003 Thomson Media Inc. All Rights Reserved.

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