RIAs and brokers are experiencing surging adoption of retail investors' preference for managed accounts, according to Fidelity.
Assets on Fidelity's Managed Accounts Solutions platform, which the investment behemoth created in partnership with technology from Envestnet, Inc., have hit the $150 billion mark.
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The MAS platform hit the $100 billion mark in October of 2014. Fidelity says the pace of growth in its managed account platform is twice the rate of the remaining industry. From 2009 to 2014, Fidelity's compound annual growth rate 42.3 percent in its MAS platform, compared to 17.3 percent for the reaming industry, according to Cerulli data cited by the Fidelity.
A Fidelity spokesperson confirmed that the new data is limited to assets in its retail channel of advisors and does not account for managed account assets in 401(k) plans.
In a statement, Mark Haggerty, head of product development for Fidelity Institutional, said the platform's capabilities are being expanded so "advisors can focus on their clients' broader financial picture."
Fidelity's and other providers' managed account platforms allow advisors to offer fee-based services for a purportedly tailored, holistic advisory offering.
That compensation structure, in accord with the comprehensiveness of advice delivered, will favor advisors once the Department of Labor's fiduciary rule's first provisions are implemented in April 2017, said Fidelity.
Fidelity said it is expecting a 10 percent increase in the use of fee-based compensation models once the rule takes effect. That will further accelerate managed account adoption.
Other managed account apologists have predicted the DOL rule will be a boon for managed accounts in the retail market.
"The rule is going to fundamentally shift industry's focus from product manufacturing to advice manufacturing," said Rob Foregger, co-founder of NextCapital, which began designing a managed account platform for record keepers and advisors to 401(k) plans in 2012. The firm has recently started targeting the retail advisory market.
"This is what the next 10 years in our industry is going to be all about," Foregger told BenefitsPro in a recent interview.
Some managed account platforms have been designed to circumvent advisors to the retail market and 401(k) plans, relying purely on technology and low-cost indexed investments to deliver accelerated long-term returns.
Others, like the one Fidelity designed with Envestnet, and NextCapital's, are designed to augment the value of person-to-person advice.
"Truly holistic advice has to involve more than just asset allocation," says Foregger.
In 2014, Cerulli projected the managed account market will climb to $6.7 trillion in assets by 2017, which would require an 18 percent annual growth rate between.
That estimate was, of course, made before the DOL finalized its fiduciary rule, which is expected to make it more difficult for advisors and brokers to sell investments on commissions.
Whether selling advice to IRA holders or 401(k) plans on a fee or within a variable compensation structure—the latter will require advisors to use the rule's Best Interest Contract Exemption—advisors will have to only charge reasonable fees for the services rendered going forward.
Fidelity, and NextCapital's Foregger, clearly think the technology behind managed accounts can be leveraged by advisors to continue to compete in a post-DOL-rule world.
"The bottom line is that if you are selling a product for a living, that's going to be a tough model going forward," Foregger said.
"But if you are selling good advice, that is going to be very consistent with the DOL rule," he added.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
