Because they offer personalization and advice, separate accounts will lure a good portion of the trillions of dollars sitting on the sidelines back into the equities market, a report from TowerGroup predicts.

Many investors have become extremely wary of the markets, as proven by a tremendous increase in assets in cash or cash-equivalent accounts, according to TowerGroup’s report, "The Money’s Back Under the Mattress, and it Ain’t Coming Out Anytime Soon." Assets in such accounts have ballooned 72% between 1998 and 2003, from $3.6 trillion to $6.2 trillion.

Because the economy is still fragile and investors’ confidence has been shaken by crises in corporate governance and instability throughout the world, they are not likely to regain faith in the stock market anytime soon.

This is why separately managed accounts will become the predominant vehicle for ownership of securities over the next five to seven years, TowerGroup predicts. "While investors want to believe in the market again, the securities industry needs to give them a good reason to come back," said Dennis Ceru, director of retail brokerage and investing at TowerGroup. "Investors want honest, actionable advice that helps them achieve financial goals and peace of mind."

TowerGroup predicts SMAs will grow at an annual compound growth rate of 18.5% over the next five years, from $399.7 billion to $1.1 trillion by 2007.

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