Transparency, efficiency and low account minimums.
That's the name of the game at Curian Capital, a Denver-based startup that has successfully implemented a purely Web-based managed account platform. Curian's online platform eliminates many of the barriers that prevent financial advisors from offering managed accounts to their clients, including a $25,000 account minimum. In an industry that is struggling to cope with operational deficiencies, lower minimums give advisers added flexibility to service the needs of the high-net-worth client.
Jim Vitalie, the firm's executive vice president of strategic development, sat down with Money Management Executive Associate Editor Kevin Burke to explain the benefits of low account minimums, the company's commitment to transparency and his thoughts on the recent mutual fund scandal.
MME: Curian's SMA platform enables advisers to bring account minimums to as low as $25,000. Is that an appropriate level and why?
Vitalie: A financial professional may determine during their analysis of a client's financial objectives that $25,000 in mutual funds is the most appropriate investment for their client. That is a decision made between the financial professional and their client.
However, if their client is looking for complete asset allocation, full diversification and customization, tax efficiency, total transparency, access to institutional quality money management with active, passive and blend styles, the ability to exclude specific securities and social sectors, automated rebalancing options, at a competitive fee, then yes, a Curian managed account at $25,000, or $2.5 million, is a very smart investment for their client.
If a managed account product is good for high-net-worth investors, it stands to reason that it is good for all investors. Generally, the most vocal group downplaying the value of managed accounts with low minimums are providers who can't offer low minimums due to the limitations of the technology platform they are saddled with.
MME: What impact if any, has the mutual fund scandal had on firms' ability to sell the managed account product?
Vitalie: At this point, there is no measurable correlation between the recent issues with the mutual fund industry, and growth in managed account sales. It is simply too early to make that connection.
However, the issues surrounding the mutual fund industry have certainly put a spotlight on the benefits of managed accounts, particularly the issue of transparency. At Curian, our investors can view all their holdings, and transaction history 24 hours a day on-line. We believe it's important for investors to always know what they own. In addition, all managed account fees are plainly disclosed.
At Curian, we have created a "Permissioning" functionality on our Web site that allows a client to provide other trusted advisers, such as tax attorneys and CPAs, with view-only accessibility to their accounts. This functionality creates true transparency, and it facilitates a financial professional becoming the center of their clients' wealth management team.
MME: Profit margins in the managed account business are thin from a manager standpoint - roughly 20% of managers are turning a profit, according to FRC. What are the biggest obstacles in the path to profitability?
Vitalie: Profit margins are thin because there are too many inefficiencies in the managed account business today, and it requires a comprehensive and flexible technology platform to make those inefficiencies disappear.
One of the benefits to being a new company is that we were able to address this issue head-on during its development process. Unlike many companies, we do not need to apply a retro-solution to an existing technology platform in order to gain efficiencies, which is costly, disruptive, and time-consuming. We built Curian on a technology platform that eliminated inefficiencies for financial professionals and money managers.
As a result, technology is a competitive advantage for Curian, not a limitation. Typically, money managers are responsible for multiple tasks above and beyond managing money, including managing and submitting paperwork for each account holder, administering cash flows, trading and customization features for each account, and marketing their organization to financial professionals.
At Curian, money managers on our platform do one thing - manage money. Our system handles the account set-up, trading and exchange and distribution of assets to and from each manager. Additionally, we have automated many of the customization features. Curian's system customizes a portfolio for each investor based on their risk tolerance and investment objectives, and allocates assets based on that portfolio, which eliminates the need for money managers to market themselves.
MME: Can Curian compete with big players who are so firmly entrenched in the SMA business? Does your SMA program fill a niche that the Smith Barneys and others aren't interested in tapping?
Vitalie: Curian does not view the wirehouse providers as direct competitors, yet, because we are not operating in the wirehouse distribution channel today. We deliberately chose to operate in different distribution channels.
Curian's core distribution channels are the independent broker/dealer channel, and the financial institution channel, and those channels are under-penetrated from a managed account perspective. In our core channels, we are very well positioned because of the value proposition we offer to financial professionals.
We offer a product that can accommodate a broader group of investors that are more reflective of the mass affluent marketplace. We have a Fee-Advance program that helps financial professionals seamlessly transition to a fee-based business. Our electronic platform essentially eliminates paperwork from the process, as everything is done on-line.
Bottom line -- Curian is competitive in our chosen distribution channels, and we are working on a long-term plan for entering other distribution channels in the future.
MME: Can you speak to the importance of the banking channel to your business?
Financial institutions are a very important distribution channel for Curian, and managed accounts are a very important product for financial institutions, particularly community banks, regional banks, and credit unions, as they compete against the multiple offerings of money center institutions.
Retaining and growing private banking, trust, and retail brokerage clients is essential for such institutions, and a competitive managed account program is a key element in that process. Curian's platform is easily adaptable across multiple divisions within a bank - trust, private client, and brokerage.
Curian's managed account program allows financial institutions to quickly offer a cutting-edge managed account program to its clients that contains the same professional money management expertise that many people believe is only available at large financial institutions. Financial institutions benefit from Curian's technology-driven platform because it makes them competitive with other financial institutions immediately without the massive and expensive investment in technology.
We believe the Curian program is very effective in the bank environment because it combines an efficient technology platform, strong sales support and training, and world-class money management, with banks' Main Street customer service- a powerful combination of core capabilities.
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