Vancouver’s Credo Consulting says that the separately-managed account business is thriving in Canada and the U.S., despite challenging investment market of recent history.

New research from Boston’s Financial Research Corp. (FRC) suggests several reasons for SMA growth. Distribution firms have placed increased emphasis on SMAs as the fee-based compensation structures annuitize revenue and allow for great control of investment management fees, and the SMA industry is at an earlier phase in its business cycle than mutual funds and variable annuities.

As well, FRC says an SMA has two primary structural advantages: a higher degree of portfolio customization and can provide significantly more tax efficiency.

“These growth trends are being echoed in the Canadian managed account industry,” says David Enns of Credo Consulting, FRC’s joint marketing partner in Canada. “While the mutual fund industry is struggling to gain new assets, we are seeing more and more Canadian investment management firms shifting their focus to separately managed accounts for all the same reasons that the industry has evolved this direction in the U.S.”

While the larger brokerage houses in the dominate SMA distribution in the U.S., research by FRC also supports the notion that a more widespread acceptance of separate accounts by non-wirehouse advisors is beginning to occur.

In a recent survey of 650 financial advisors associated with the Financial Planning Association, 76% of the advisors indicated that they would be increasing their usage of SMA’s in the next three to five years. Increased use of separate accounts by non-wirehouse advisors is instrumental for the industry to become a multi-trillion-dollar product over the next 10 to 20 years.