The emergence of the separately managed account business is likely to have a significant long-term impact on the fund world in both the United States and Canada according to a new study from Financial Research Corp.

Separately managed accounts may present the greatest challenge to the continued growth and profitability of asset managers that remain wedded to funds alone, the firm says.

“Separately managed accounts represent a valid threat to mutual fund managers as affluent investors search for the ability to provide greater input into their investment strategies and benefit from tax efficient investing. Fund companies need to be evaluating the financial implications of not participating.” says David Enns, president of Credo Consulting Inc., the joint marketing partner of FRC in Canada.

The study quantifies the growth potential of this segment in the U.S. marketplace and provides insights regarding the true long-term impact separate accounts will have on the fund industry.

It looks at the primary drivers of growth for the SMA industry; the business considerations for investment managers looking to get into the market; and the impact of an SMA initiative have on a firm’s marketing strategy and distribution team.

The study notes that financial advisors are diversifying their books, and SMAs are the number one product they are considering for their clients.

“One of the key benefits to asset managers is that while SMA assets are a challenge to attract, they are much easier to retain. While the mutual fund industry continues to grapple with the challenge of average redemption rates of more than 30% in the U.S., managed account sponsors have reported annual redemption rates as low as 8% – 10%. Being able to hold on to assets for an average of up to 10 years, versus roughly three years in the mutual fund world, gives SMA providers a huge advantage over their mutual fund brethren in the quest to grow assets.”