Technology has played an integral role in the development of the financial services industry over its life span, as companies have continually churned out new products that make investing procedures more reliable, more efficient and more cost effective.
Today, the separately managed account space is proof of that.
For years, the SMA was regarded as an exclusive investment vehicle restricted to high-net-worth individuals and the emerging affluent. But advances in software and processing power have brought the SMA product within the reach of the average investor. Automated application systems now make it possible to enroll new clients in several hours and, in some instances, fund new accounts within 24 hours. Features such as proposal generation, investment policy statements, suitability questionnaires and daily account management and reporting are all available at the click of a mouse.
Nowhere is that trend more evident than at Curian Capital, a registered investment advisor and subsidiary of United Kingdom's Prudential, a financial services firm with $250 billion in assets under management. The Denver-based firm markets managed accounts to financial advisers through an entirely paperless investment platform. Its Web-based SMA system, launched in March, has enabled it to lower account minimums down to $25,000, while still maintaining proper diversification. Lower account minimums enable the firm to lure a broader range of investors to the managed account space.
"The race has been on to continually bring account minimums down while preserving the favorable features of separately managed accounts and margins so that people can stay in business," said James Vitalie, executive vice president of strategic development at Curian.
The platform operates as a fully disclosed wrap program, one that has shifted the administrative responsibility away from money managers to the plan sponsors, leaving managers free to focus solely on running the portfolio. Managers do not have to worry about cash flow, opening new accounts or account maintenance. And they don't have to build out any external infrastructure or hire internal administrative help.
The most striking advantage to moving the process online is that clients and their designated financial advisers have instant access to their account information and all relevant documents, 24 hours a day, seven days a week. Curian offers access to up to 270 portfolios, anywhere from five to 20 professional money managers and between five and 18 investment styles.
The company employs a strong sales force with 26 people in the field, four development officers and six people in professional development responsible for their training and education program. They also have 26 internal salespersons. Currently, they have more than 100 selling agreements. The firm would not disclose an estimate of how many assets it has amassed since its inception but said it will issue a report later this year.
To operate the platform, advisers enter the client's profile information using a password-protected login. Risk tolerance, suitability and customization questions are all available to the adviser online. Curian uses that information and the technology it has incorporated to synchronize the individual account and the trading platform.
Vitalie noted that those who criticize the leveling of the playing field for the average investor are those who do not have the technology available to them to offer lower account minimums. The traditional SMA platform requires the manager to set up each account individually, thereby making it impossible for them to make money off a $25,000 account and achieve proper diversification.
"Money managers are stuck in the old paradigm of trying to open individual accounts for each account they operate, and they can't make money at that level," Vitalie said. "I think we've cracked the code."
Curian's competitors vary depending upon the services they provide, but its closest rivals are Brinker Capital, Lockwood and Investment PMC, each with a substantial stake in the managed account business. But with this new technology in place, Curian believes that it is blazing the trail in a fee-based environment. "They don't have the customization features, the low account minimums or a fully functional online tool for managing the account," Vitalie said.
"SMAs are going to gain wider acceptance whether the market goes up or down," Vitalie said. "As it becomes more reachable for the average person, it will become more and more understood."
Washington-based trade group Money Management Institute is currently projecting that SMA assets will exceed $1 trillion in the next five years.
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