Almost two-thirds (60.7%) of asset managers surveyed by Cerulli Associates reported having 11 or more separately managed accounts program consultant relationships. This means that as clients and advisors shop for sponsors with whom to do business, chances are that in terms of investment offerings, their choices are very similar. While multiple relationships may mean more business for an asset manager, two-thirds of managers report that more than 80% of their separate account consultant program assets were with their top five sponsors, indicating that the revenues generated from multiple sponsor relationships might not necessarily justify the added operational and support expenses. As offerings across platforms begin to look more and more similar, sponsor firms-both large and small-may consider a greater focus on differentiating their platforms through the use of exclusivity agreements with asset managers.
Exclusivity agreements can be an important part of continuing to level the playing field for asset managers and sponsor firms in the managed accounts space. For large sponsor firms, entering into exclusive agreements with boutique investment managers can be an important way to provide differentiation from their competitors. For these boutique asset managers, exclusive agreements mean they can parlay much higher management fees than they would typically be able to negotiate. On the other hand, they must weigh the risk of being on a single or a handful of platforms should their performance waiver as volatile flows are not uncommon across asset managers. In these cases, termination from a sponsor platform can cause a rapid and irreversible loss of assets.
But exclusivity agreements are not only beneficial to large sponsor firms that can afford to pay larger fees to asset managers for the exclusive rights to distribute their products, but also they can provide opportunities for smaller broker/dealers, particularly in the independent channel, to strike deals with asset managers that have closed offerings. Being able to provide exclusive investment opportunities to advisors and their clients to managers that would typically be inaccessible can be an important tool in the recruiting and retention of quality producers for smaller broker/dealers looking to compete with the large wirehouses.
As the managed account playing field levels and managed account programs continue to become commoditized, Cerulli analysts believe that the ability of sponsor firms to differentiate themselves through exclusive investment offerings will be crucial in helping to gain (and maintain) marketshare.