Firms fight acronym overkill, struggle to meet demands of a changing market. Investment-product distributors and money managers came together at a recent convention of the separately managed account (SMA) industry in a mood of tempered optimism. On the plus side, assets under management had months earlier hopped the $1.5-trillion mark, and SMA distribution, long a wirehouse fiefdom, broadening to reflect increased uptake by regional and independent brokerages, banks and RIAs.

But the pall of a weakening economy, pressures to adapt products to a changing marketscape and a growing tension between SMA-as-product and SMA-as-process kept discussions grounded in and around the Money Management Institute 's (MMI) Annual Conference, which took place in Boston this past March.

SMAs are individual investment accounts sold by financial consultants that hold investor-owned stocks, bonds and other vehicles. As retail products, their raison d'etre is to provide "institutional quality" asset management while taking into consideration the investor's risks and objectives.

But high minimums keep SMAs on the high end of the retail-investor spectrum. Denver-based SMA-platform provider Curian says it can support a $25,000 portfolio, but that's because it deals, unusually, in fractional shares. Minimums typically fall between $100,000 and $500,000 -- and that's for a single style. Manager-models-based portfolios offer broader allocations, but their minimums, by and large, are in the same range.

Alphabet soup

One sign of flux in the space is a gentle nudging by the MMI, a Washington, D.C.-based association of SMA managers and sponsors, toward a new name for the business. In 2006, the MMI has dropped the "SMA" tag -- as a catch-all anyway -- and began referring to the "managed investment solution and wealth management" industry and, on a product level, to "managed account solutions."

Time will tell whether these monikers stick, but the need for new, simpler language is keenly felt. For one thing, no discussion of SMAs lasts long before their models-based adjuncts, variously -- and with reference to slight differences -- called multiple style portfolios (MSPs) and unified managed accounts (UMAs), come into play. And that's just a spoonful of the alphabet soup SMA players cook up.

Clearing firm Pershing's Managed Account Solutions, a provider of open-architecture investment platforms and related technologies, uses 19 acronyms to describe internal and external products and platforms, according to its CEO Jim Seuffert.

"This is an industry full of all these names, all these letters," says Seuffert. "It's hard for us to keep track of them."

Ian MacEachern, managing director of advisory products at Charlotte, N.C.-based Wachovia Securities, agrees. "The acronyms we use -- and we all use them -- are creating confusion," he said. "But we're trying to get past that and, functionally, create a lot more simplicity for the advisor and the client."

Baby boomers

SMAs, broadly defined to include all assets in models-based accounts, hit the $1.5-trillion mark in the third quarter of 2007, according to the MMI; a better than 200% increase over their total at year end 2003. The MMI doesn't say how much of its tally of SMA assets are in manager-model accounts. But Cerulli Associates, a Boston-based market-research firm, says that UMAs -- single-account blends of SMAs, mutual funds and ETFs -- and the more popular MSP -- a multi-sleeve selection of SMAs -- accounted for about $120 billion in June 2007.

And there's apparently scope for SMAs to grow. The U.S. and Canada accounted for around $20 trillion, or 40%, of the world's high-net-worth assets in 2007 -- and Oliver Wyman, a New York-based management consultancy, sees an 8% annual increase in that figure to $29 trillion in 2012.

But some say that continued growth for the SMA industry is tied to its ability to help aging baby boomers manage assets and income when their working days are done.

"The challenge that retirees face is generating a regular income stream while being sensitive to their unique risk, tax and legal considerations," says Lee Chertavian, CEO of Dallas- and Wellesley, Mass.-based overlay manager Placemark Investments.

There about 74 million boomers in this country, and "first-wave" boomers -- those over 55 -- control about three quarters of all consumer-owned assets in the U.S., according to Tiburon Strategic Advisors, a Tiburon, Calif.-based consulting firm.

But if the potential market for retirement-income products and solutions is big, so is the need for retirement-income solutions. An American who reaches age 65 these days has a 50% chance of hitting 85. In addition to long retirements, boomers face healthcare costs that are going through the roof. As a result, many consumers who qualify as mass-affluent and even high-net-worth fret that they'll run out of money before they die.

Just before the MMI conference in March, Malvern, Pa.-based Lockwood Capital Management, a unit of Pershing Managed Account Solutions, rolled out a "Longevity Income Solutions" UMA with an annuity rider from Hartford, Conn.-based Phoenix.

"Baby boomers are the first generation in modern history responsible for managing their own retirement plans," says Pershing's Seuffert. "[They] want solutions like their parents' defined benefit plans provided."

Meanwhile, Placemark is out to help advisors cater to baby boomers with an outsourced approach to managing household wealth that "coordinates distributions among multiple qualified and non-qualified accounts with client-specific tax and risk requirements, while simultaneously calculating and generating required minimum distributions on retirement accounts," according to a recent press release.

In other words, Placemark is using its overlay capabilities to provide tax-efficient income distribution and regular rebalancing across investment buckets -- taxable and not; same CUSIP or not.

Process v. product

Unlike Lockwood's "annuitized" UMA, Placemark's "Customized Income Management" is more process than product. Instead of requiring the investor to buy or sell assets, it can attach oversight processes to a family's existing holdings.

But then the whole complex of fee-based investment consulting is best approached as a process, according to John Sawyer, CIO of Houston-based Compass Wealth Management, the trust and investment-advisory unit of Birmingham, Ala.-based Compass Bank.

Early in 2006, Compass launched an in-house overlay platform to support its move to a "guided architecture" investment platform combining proprietary and outside investment management. Since then its assets under management have doubled to more than $7 billion and it has seen investment-management fees increase by 126%.

"We don't lead with product, we lead with advice," says Sawyer. "Our UMA, portfolio-optimization isn't a product platform, it's how we deal with investments."

Compass uses overlay technology from a Cambridge, Mass.-based firm called Smartleaf. This gives Compass' portfolio managers a web-based interface for monitoring and adjusting accounts based on client preferences, model drift and tax considerations.

"The technology enables our approach, which is managing wealth in a holistic manner," says Sawyer. "To do that, we need portfolio managers who know the client and we need to understand how the investments are working for the client -- and that's just not going to work as a product."

The move away from product-centricity in the SMA space is reflected in changes at the MMI. Late last year, it absorbed the Forum for Investor Advice (FFIA), a Bethesda, Md.-based association of asset-management firms, broker-dealers, insurance companies and banks.

As a standalone association, the FFIA was founded to help members adapt to changing trends in the delivery of advice -- arguably a more inclusive mandate than the MMI's traditional focus on investment consulting programs. In any event the MMI comes out of the FFIA merger with more of a change-agent mindset than ever.

"We've come to realize that SMAs have matured, they're growing into the UMA that encompass SMAs, mutual funds and ETFs as well as, increasingly, alternatives like hedge funds and funds of funds," says the MMI's head of communications Hilary Fiorella. -FWR

Purchase reproduction rights to this article.