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Portfolio construction assistance ‘fundamental to managed account sponsor’s value’

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Portfolio construction assistance is fundamental to a managed account sponsor's value, according to global analytics firm Cerulli Associates.

"The role of advisors in the portfolio construction process is a topic of ongoing debate," says Scott Smith, director at Cerulli. "After the financial crisis, many advisors sought to take greater control of client portfolios, which accelerated the growth of advisor-driven managed accounts."
 
The third quarter issue of The Cerulli Edge-Managed Accounts Edition examines portfolio construction with an emphasis on retirement income.
 
"The trend toward advisor discretion conflicts with what are generally considered to be best practices when designing a wealth management firm of scale," Smith says. "The skills required to manage client relationships are distinct from those needed to successfully run portfolios.
 
"Sponsor home-office teams generally prefer greater reliance on centralised portfolio services, but are reluctant to push advisors to adopt them for fear of offending their advisor force. Given the limited supply of productive financial advisors, and the ease with which they can change firms, broker/dealers often find themselves supporting advisors' preferences that diverge from the firm's long-term strategy."
 
Cerulli's research finds that increased reliance on centralised portfolio management options is logically correct, but is trumped by the desires of advisors who prefer to maintain ultimate portfolio authority.
 
"Beyond risk mitigation, there are also potential incremental benefits of developing robust programs to assist advisors in their portfolio construction and management process," Smith adds. "Our research indicates that advisors typically spend 20 per cent of their time on investment management duties, including due diligence, research, and trading. Reducing the time advisors need to spend managing client portfolios allows more time for client-facing activities, such as prospecting and meeting new clients, which are highly correlated to increased revenues from additional asset gathering." 

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