Market Analysis – 64102008 – Managed investment account

Executive Summary

The global market for managed investment accounts, valued at over $120 trillion in Assets Under Management (AUM), is experiencing moderate growth driven by expanding global wealth. The market is projected to grow at a est. 5-7% CAGR over the next three years, though this is tempered by significant fee compression from passive alternatives. The single greatest opportunity lies in capturing the estimated $84 trillion intergenerational wealth transfer expected by 2045, which demands a shift toward more personalized, tech-enabled, and values-aligned service offerings. The primary threat remains margin erosion due to the rise of low-cost robo-advisors and ETFs.

Market Size & Growth

The Total Addressable Market (TAM) for professionally managed assets is a segment of the global Assets Under Management (AUM) market. The global AUM stood at an estimated $126 trillion at the end of 2022, recovering from a downturn earlier in the year. Projections indicate steady growth, driven by wealth accumulation in North America and Asia-Pacific. The three largest geographic markets are 1. North America (led by the USA), 2. Europe (led by UK, Switzerland, Germany), and 3. Asia-Pacific (led by China and Japan).

[Source - PwC, Global Asset and Wealth Management Survey, Jul 2023]

Key Drivers & Constraints

1. Demand Driver (Wealth Growth): The primary driver is the continued growth of the global High-Net-Worth (HNW) and mass affluent populations, creating a larger pool of investable assets requiring professional management.
2. Demand Driver (Personalization): Increasing client demand for customized portfolios, including ESG (Environmental, Social, Governance) mandates and tax-optimized strategies like direct indexing, is fueling a shift away from one-size-fits-all mutual funds.
3. Constraint (Fee Compression): Intense competition from low-cost passive ETFs and automated robo-advisory platforms continues to exert downward pressure on management fees, forcing active managers to justify their value proposition.
4. Constraint (Regulatory Scrutiny): Heightened regulatory oversight regarding fiduciary duty, fee transparency (e.g., SEC's Regulation Best Interest in the US), and ESG disclosure requirements increases compliance costs and operational complexity.
5. Technology Shift: The adoption of AI, machine learning, and advanced data analytics is becoming critical for alpha generation, risk management, and delivering hyper-personalized client experiences at scale.
6. Market Volatility: Macroeconomic uncertainty, inflation, and interest rate fluctuations increase market volatility, which can lead to AUM depreciation and reduced fee revenue, while simultaneously increasing client demand for active risk management.

Competitive Landscape

Barriers to entry are High, predicated on regulatory licensing, significant brand trust, reputational risk management, and the high cost of acquiring and retaining top-tier portfolio management talent.

⮕ Tier 1 Leaders * BlackRock: The world's largest asset manager, leveraging immense scale and its "Aladdin" technology platform to serve institutional and retail clients across active and passive strategies. * The Vanguard Group: A dominant force in low-cost passive investing, its mutual ownership structure and focus on ETFs set the benchmark for industry-wide fee pressure. * UBS Group AG: A global leader in wealth management, differentiating through its vast global network of financial advisors and a comprehensive service offering for UHNW individuals. * Morgan Stanley: A premier wealth management franchise with a strong focus on the US market, bolstered by strategic acquisitions (E*TRADE, Eaton Vance) to expand its reach and capabilities.

⮕ Emerging/Niche Players * Betterment / Wealthfront: Leading robo-advisors using algorithms for automated, low-cost portfolio management, primarily targeting mass-affluent and younger investors. * Addepar: A fintech platform providing the underlying data aggregation and reporting technology for hundreds of RIAs and family offices, enabling them to compete with larger institutions. * Boutique RIAs (Registered Investment Advisors): Thousands of smaller, independent firms offering highly specialized advice, personalized service, or niche investment strategies (e.g., sustainable investing, alternative assets).

Pricing Mechanics

The predominant pricing model is a fee based on Assets Under Management (AUM), charged annually and billed quarterly. This fee is typically tiered, decreasing as the asset level increases. For a standard managed account, this fee ranges from 0.50% to 1.50% annually. This "wrap fee" is intended to cover all primary services: investment management, portfolio construction, trade execution, custody, and reporting.

However, all-in costs can be higher, as the wrap fee may not include expenses for underlying products (e.g., expense ratios for ETFs or mutual funds used within the account) or fees for specialized sub-advisors. The most significant cost driver is the market value of the assets themselves. A market downturn directly reduces the asset base upon which fees are calculated, impacting supplier revenue and creating inherent price volatility for the service.

The 3 most volatile cost elements for the provider, which influence pricing strategy, are: 1. Market Value of Assets: Directly tied to market performance. A -10% market correction results in a -10% reduction in gross fee revenue. 2. Talent Costs (Portfolio Managers/Advisors): Compensation is highly variable and tied to performance bonuses and competition for talent. Can fluctuate +15-25% in strong market years. 3. Compliance & Technology Spend: Can increase unexpectedly by +5-10% annually due to new regulations or the need to invest in platforms to remain competitive.

Recent Trends & Innovation

• Rise of Direct Indexing: Technology now enables the creation of customized, index-like portfolios for individual investors. This allows for enhanced tax-loss harvesting and precise ESG screening. Major firms have made acquisitions to build this capability (e.g., Morgan Stanley acquired Eaton Vance/Parametric, Oct 2020; BlackRock acquired Aperio, Nov 2020).
• Democratization of Alternative Investments: Fintech platforms and evolving fund structures are providing accredited investors with easier access to previously institutional-only asset classes like private equity, private credit, and venture capital.
• Hyper-Personalization through AI: Firms are increasingly using AI and data analytics to tailor investment advice, client communications, and product recommendations at an individual level, moving beyond traditional demographic segmentation (Ongoing, 2022-Present).
• Industry Consolidation: A persistent M&A trend continues as large players seek to gain scale, acquire new technology, or enter new client segments. A notable example is UBS's government-brokered acquisition of Credit Suisse (Mar 2023), dramatically consolidating the Swiss wealth management landscape.

Supplier Landscape

Note: Market share is estimated based on reported AUM as a percentage of the est. $126T global market.

Regional Focus: North Carolina (USA)

North Carolina presents a high-growth demand outlook for managed investment accounts. The state's robust economic expansion, particularly in the financial services hub of Charlotte and the tech-centric Research Triangle Park (Raleigh-Durham), is creating a rapidly growing class of HNW and mass-affluent professionals. This demographic shift fuels strong organic demand for sophisticated wealth management and financial planning services.

Local capacity is excellent. Charlotte is the corporate headquarters for Bank of America and a major operational hub for Wells Fargo, both of which have extensive wealth management divisions (including Merrill Lynch and Wells Fargo Advisors). All major national wirehouses and a vibrant, competitive ecosystem of independent RIAs have a significant presence. The state's favorable business climate and deep financial talent pool support a well-supplied and competitive market for these services.

Risk Outlook

Actionable Sourcing Recommendations

1. Implement a Tiered Fee & Technology RFP. Consolidate spend with a primary provider but mandate a tiered AUM fee schedule that declines by 5-10 bps at key asset thresholds. Require bidders to demonstrate direct indexing and automated tax-loss harvesting capabilities. Target an all-in cost reduction of 15 bps versus blended industry averages by unbundling platform, advisory, and underlying investment fees.
2. Diversify Provider Type to Mitigate Risk. For corporate or executive assets, allocate 70-80% to a Tier 1 global provider for scale and stability. Allocate the remaining 20-30% to a pre-qualified boutique or specialized RIA focused on a niche strategy (e.g., impact investing, private credit). This creates a competitive "bake-off" environment and provides access to differentiated sources of return and expertise.