As Seen in FundFire: Aberdeen Jumps into Model-Delivery SMA Business

The following article was originally published in Fundfire
by Alyson Velati September 24, 2019

Aberdeen Standard Investments has jumped into the retail model-delivered separately managed account (SMA) business in response to increasing demand from U.S. distribution partners.

The firm’s first model-delivered SMA is modeled after an existing U.S. small-cap equity mutual fund.

“To stay competitive, it is really important that we ensure that our capabilities are available in the most efficient manner for our clients,” said Chris Demetriou, Aberdeen’s CEO for the Americas in a statement. “We anticipate this being a growth area of business for us.”

In the future, the $669 billion manager expects to introduce mid-cap, international, and fixed income SMAs to the U.S. retail market.

Aberdeen has historically offered separate accounts for institutional clients, but it's now looking to make “similar levels of customization and tailoring” available through retail intermediary partners, Alan Goodson, head of product and solutions for the Americas at Aberdeen, says in an email response to questions.

To support their SMA business, Aberdeen has partnered with Archer for technology services.

“Archer will work as an extension of the Aberdeen team, allowing them to focus on security selection and model building while giving them the ability to easily scale as their platform participation expands,” says Matt Caulfield, executive v.p. of client experience and business development for Archer, in an email response to questions.

Aberdeen’s relationship with Archer is currently limited to the firm’s U.S. business, but Aberdeen hopes to expand its global reach as it enhances its operational infrastructure, says Goodson, via email.

“The Archer partnership will allow us to scale this business and provide models across a broad suite of investment solutions,” he says.

Archer has bolstered its client list over the past year as a host of other managers have sought to build out their retail SMA businesses.

In April, Ivy Investments launched seven model-delivered equity strategies that were initially available on Envestnet’s platform, with the help of Archer, as reported. American Century Investments also tapped Archer to help roll out its model-based SMA business, as reported in March. And earlier this year, Cohen & Steers hired Archer as its outsourcing provider.

“Asset managers continue to enter the SMA and UMA marketplace at a very rapid pace,” said Archer’s Caulfield in a statement. “They are looking for ways to expand their brand and diversify product offering to meet the needs of their distribution partners and investors. The ability to diversify their product offering via the SMA & UMA channel remains a very attractive segment to increase assets and revenues.”

For intermediaries and their end clients, model-delivery SMAs are appealing since they are typically lower in cost compared to traditional SMAs, says Paul Ahern, president and founding principal of Winslow Capital Group. Models allow third-party managers “to offer lower prices and find another channel of distribution for their intellectual capital,” he says.

For this year, most third-party asset managers’ product development teams are ramping up their focus on creating model-delivery SMAs due to advisor demand and the growing use of UMA technology, according to a previously published FUSE Research Network study. Sixty-two percent of surveyed managers said that model-delivered SMAs were a major area of focus for product development.

Since a lot of intermediaries and distribution partners are increasingly “culling the number of funds they have available [on platforms] and have the desire to work with fewer asset managers across platforms,” it’s crucial for managers that have a mutual fund or another type of fund on a platform to be able to offer these funds in a SMA format, says Craig Kilgallen, director of relationship management at FUSE Research Network.

“The distribution firm might love a certain fund that’s offered by the asset manager,” he says. “But if they don’t offer it in an SMA format, they’re going to have to go to another firm.”

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