Delaware Investments of Philadelphia and Linsco/Private Ledger (LPL Financial) of San Diego and Boston have wrapped up the details of an agreement to partner for a brand new mutual fund wrap program that will launch in September with a $15,000 account minimum.
Under the program, Delaware Management will serve as the advisor to a newly created family of seven mutual funds. Six will be sub-advised by well-known, outside money managers, including Marsico Capital Management, T. Rowe Price, MFS, Van Kampen Asset Management, Hotchkis & Wiley Capital Management and Delafield Asset Management, which is a division of Reich & Tang Asset Management.
Four of the funds, including the large-cap growth fund, large-cap value fund, small-cap growth fund and small-cap value fund, will pair two complementary managers - one more aggressive with one more conservative manager - who invest within the same style.
Delaware International Advisers, Delaware's international asset management arm based in London, will co-manage the new fixed-income fund alongside Deutsche Investment Management Americas.
Marsico will be the sole sub-advisor for the international fund, and Delaware will single-handedly manage the new fund wrap program's money market fund.
In BOB we Trust
The new fund group now carries the preliminary "BOB Trust" moniker, but a final name will be decided upon prior to launch. The BOB acronym stands for best of breed, an obvious reference to the high-profile and easily recognizable sub-advisors who have been hired.
For Delaware, the partnership with LPL is unique, and it offers the firm a chance to further its relationship with LPL and fill a real need, said Jude Driscoll, Delaware's CEO. "The program is another avenue for [our] asset gathering," he added.
LPL Financial, long known as the fiercely independent, fee-based broker/dealer that has shunned any proprietary products or investment banking business, which it believes could cloud its independent research, will offer the new program to its clients via its 4,600 representatives located in 2,800 offices nationwide.
LPL plans to officially introduce the wrap program in August at its annual meeting in San Diego, said Jim Putnam, LPL's managing director and head of sales. The firm will also leverage its e-wholesalers who communicate with LPL reps through the firm's extranet. Those efforts will be followed by a full-blown road show in the fall, he added.
For LPL, the new mutual fund wrap program represents a broadening of its existing relationship with Delaware. LPL approached Delaware about hatching such an arrangement, said Mark Casady, president and CEO of LPL in an interview. LPL reps had been selling Delaware's mutual funds, as well as many of the annuity products offered by Delaware's parent Lincoln Financial Group, he said.
Casady was named president of the firm in March of this year when former President Dave Butterfield was promoted to chairman. Casady joined the firm nine months earlier from Scudder Investments.
The new wrap partnership also allows LPL to expand its market share of the fund wrap universe. Within that universe, the five largest players own almost 60% of the market share, according to Cerulli Associates of Boston. At the end of 2002, LPL was in fourth place with an 8.6% market share.
$140 Million in Technology
In addition, the new program lets LPL showcase its highly touted technological savvy. Over the last seven years, LPL has invested $140 million in technology, despite the sometimes difficult market environment, Putnam said.
LPL's technology also allows LPL reps to accomplish a task that often baffles reps or handcuffs investors - rebalancing. Periodic rebalancing can be cumbersome at best. But LPL's platform allows for reps to quickly and easily rebalance their clients' mutual fund wrap account holdings within a single brokerage account without the client incurring any sales charges, Casady said. The balancing is done centrally at LPL, on a quarterly, semi-annual or annual basis as dictated by the rep and client.
Rebalancing, on-going monitoring and continued risk management are vital to the success of any mutual fund wrap program, said Patrick Byrne, a Westport, Conn.-based consultant and former executive at USAA in San Antonio, Tex. who headed up the firm's managed account business. Investors want to know that for the fee they are paying, their financial adviser is watching over their portfolio virtually 24/7, and willing to rebalance when individual needs or recommended asset allocations change, or even as valuations get stretched, he said. "Investors don't want to lose a dime of their money," he said.
Of course, well-meaning advisers have to be careful not to rebalance too often, he cautions. "More frequent rebalancing can cause taxable events that dig into returns," Byrne said.
A multi-manager platform for any managed money program is also a must, Byrne noted, as investors don't want one manager watching all of their assets. Moreover, investors have gotten used to the concept of cherry-picking the best talent. "Unless you have the ilk of product line, no one shop has the expertise to be successful in all sectors or styles," he said. "To deliver better performance, you have to go outside your shop."
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