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Understanding these practices’ defining characteristics can assist third parties’ segmentation strategies
October 2019, BOSTON—A recent survey of advisors by Cerulli Associates found that 62% of all advisors—or 55% of all practices—rely on their own investment research and portfolio construction. However, Cerulli speculates that only 7% of those advisory practices that currently insource these activities are at an optimal scale to do so. The research further reveals that these practices, otherwise referred to as Optimal Non-Users (i.e., non-users of prepackaged models), display common attributes, including specific structures, staff, and services.
Baseline criteria to be considered an Optimal Non-User of centralized models is a team-based environment, staffed appropriately with layers of stakeholders and asset-gatherers supported by the resources needed to customize portfolios, retain existing relationships, attract new clients, and build rapport with families’ beneficiaries and outside advisors.
“Of all Optimal Non-User practice types, wealth managers are the most likely practice type to exhibit the defining characteristics,” says Donnie Ethier, director of wealth management at Cerulli. “Not only do they offer the most advanced planning options, but they are also led by the industry’s most experienced and educated advisors, resulting in leadership that focuses on developing business scale.”
Core market, or average client account size, as well as a practice’s total assets under management (AUM) are also qualifiers to be considered an Optimal Non-User of models. Cerulli finds that firms with an average account size of $2 million and greater, and a minimum AUM floor of $250 million are candidates for this segment, but the practices that can genuinely customize portfolios skew closer to the $500 million range. Optimal Non-Users are exponentially more likely to reside within the wirehouse, hybrid registered investment advisor (RIA), and independent RIA channels.
Lastly, because of their scale, these practices value different offerings from distribution teams. They place greater value on competitive product information and commentary from portfolio managers compared with other topics, including client educational content, interactive tools, and practice management programs, that smaller practices crave most.
“Third parties should evaluate their target practices to segment opportunities and design distribution strategies if they hope to engage these teams,” suggests Ethier. “Segmentation can also help wealth management executives evaluate their own teams and better assess which may be adequately prepared to work outside of home-office resources if they insist.”
These findings and more are from the 4Q 2019 issue of The Cerulli Edge—U.S. Advisor Edition, which explains why substantial opportunity exists to win business in the asset allocation model portfolio space.
NOTES TO EDITORS:
These findings and more are from: The Cerulli Edge—U.S. Advisor Edition, 4Q 2019 Issue.
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