A three-year bear market has left wealthy investors groping in the dark, but with plenty of cash still sitting on the sidelines separately managed accounts may serve as a beacon of hope for recovery.

A research report issued by TowerGroup, a Needham, Mass.-based research and advisory firm, suggests that SMAs will become the predominant form of equity investment for the next five to seven years given their tax efficiency, direct ownership and customization features. However, it will take time before money will flow back into the markets because of the massive damage that has been done both monetarily and psychologically. The first step is to assess what went wrong with the markets in the first place that forced investors' cash back under the mattress.

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