Asset managers in the separately managed account (SMA) sector raised their marketing budgets last year, while adding both internal and external distribution teams, according to a report commissioned by The Money Management Institute.

However, these managers need to focus on fewer, more profitable sales relationships to maximize their external marketers and extract more profits from their alliances with SMA platform providers, according to the Distribution Trends in the Separately Managed Account Industry report compiled by the Financial Research Corp. (FRC).

In 2002, marketing budgets were expanded by 22.1 percent, with Tier II firms ($1 billion to $5 billion in assets) jacking up budgets by 52.2 percent. Tier I ($5 billion-plus) and Tier III (less than $1 billion) firms grew their allotments by 17.7 percent and 20.9 percent, respectively, according to the report.

The hikes were driven by the addition of internal and field marketers, and SMA product specialists, as well as revenue sharing and marketing support for platform providers, according to Michael Evans, FRC vice president/consultant.

"These practices supporting platform providers are not yet widespread in the SMA world. However, asset managers should expect demand from distributors for these financial arrangements to grow, as they seek to enhance the economics of their own SMA businesses," said Evans.

Also, pay for external marketers fell last year, with the average pro earning $249,000, down 4.6 percent from 2001. However, the top marketers reaped a modest raise, due to a 6.4 percent increase in commission based pay, the report finds.

Moreover, mutual fund firms with large wholesaling forces continued to migrate to the SMA arena. "For long-term success in SMAs, firms that have historically been anchored in the mutual fund arena must demonstrate a high level of commitment that builds upon these past successes," said Mark McMeans, president and COO of AIM Private Asset Management.

Meanwhile, assets held in fee-based managed accounts, including SMAs, grew by 0.3% to finish the first quarter with a total of $729.0 billion, which compares to a loss of 3.1 percent in value for the Wilshire 5000 index in that same period, according to a recent Cerulli survey.

The $729 billion also represents assets held by broker-dealers and financial advisors for clients in Mutual Fund Advisory, Rep-as-Portfolio-Manager and Fee-Based Brokerage programs.

SMAs represent $382.6 billion in assets as of the first quarter, reflecting a loss of about $1.5 billion in net assets for the quarter, despite positive cash flows, according to Cerulli. Proprietary manager programs account for slightly less than one-quarter of SMAs.

Since the first quarter of 2002, assets in SMAs have dropped 12.2 percent. Still, the first quarter yielded about $8 billion in net cash flows into SMAs, according to Cerulli estimates. On a proportional basis, the flows into separate accounts were higher than those of long-term mutual funds. 

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