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Industry Needs Help with Delivering Personalized SMAs: Cerulli

By Alex Padalka October 14, 2020

The financial services industry is behind on personalizing separately managed accounts, such as for tax optimization, but fintech solutions may hold the ticket to wider adoption, according to a recent report.

Direct indexing is seen by 67% of asset management firms as the most direct method to manage for tax as well as for environmental, social, and governance factors, research firm Cerulli says.

However, only 53% of managed accounts currently receive tax treatment and just 16% get systematic tax optimization, according to Cerulli’s recent report on managed accounts. In addition, only 24% take advantage of tax location strategies, the company says.

“At a time when overlay management of taxes is readily available, this low proportion represents a failure to realize the long-articulated benefits of managed accounts,” Cerulli director Tom O’Shea says in a statement. 

Meanwhile, certain developments in the industry — such as a transition away from brokerage commissions, the increased use of fractional shares and improvements in the ability of algorithms to construct portfolios — mean that financial services firms can offer tax optimization to a wider range of clients, thanks to a lower price point, Cerulli says. 

For the industry to be able to do that, asset managers will need to devise a “console” that lets advisors build portfolios with input from their clients and communication with portfolio managers, according to the report.

“To do this, the industry has to move to tech-enabled solutions,” O’Shea says in the statement.

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Tags:  Technology , Portfolio management , Cerulli

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