Active Strikes Back

Terry Flanagan

Burned by the 2008 financial crisis, financial advisors focus from portfolio sales to portfolio monitoring.

Boston based research firm Cerulli Associates anticipates the percentage of financial advisors’ discretionary business will increase from 59% in 2011 to 71% by 2013, in a trend-wide movement of advisors’ amplifying their roles to discretionary portfolio managers.

“As a result of today’s market turmoil, advisers have an obligation to look out for their clients,” said Scott Smith, head of Cerulli’s intermediary practice. “Before they just picked a Morningstar style box and made sure it adhered to their long term strategic approach, but in the short term, now advisers are pursuing tactical overlays.”

Other firm research illustrates “that advisors prefer the freedom of open programs over packaged solutions,” said Patrick Newcomb, senior analyst in Cerulli’s managed accounts practice.

A heightened sense of portfolio monitoring has helped surge discretionary business for advisers but for many advisors, packaged programs may still be just the solution to improve efficiency and client performance, noted a Cerulli statement.

“Firms must walk a fine line between extolling the virtues of a centralized services approach and respecting the autonomy of advisors to serve investors as they see fit,” commented Smith.

“The acceptance of packaged programs by advisors could ultimately be driven by the performance of the programs relative to the advisor’s own results,” said Newcomb.”Client management and portfolio management are often not intersecting skills, which would suggest consideration of firm discretionary solutions to focus efforts toward client services.”

While advisors certainly always vouch for new business, the emphasis in today’s volatile environment is very much adding pressure for advisors to maintain strong relationships with existing clients.

“There is a fee based model over just commission,” noted Smith of advisors’ new responsibilities. “There’s legal responsibility now to rebalance portfolios,” which may not have been present in previous advisors’ remits.

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