U.S. Managed Accounts 2017

U.S. Managed Accounts 2017 Convergence and its Implications Overview & Methodology In its fifteenth iteration, this annual report dissects the managed account marketplace, providing key business metrics gleaned from Cerulli s managed accounts database, which has been compiled over nearly 20 years. It contains analysis and data critical to managed account asset managers and program sponsors, such as market sizing and growth projections, distribution dynamics, business practices, industry economics, proliferation of fee-based relationships among advisors and firms, developments in product design and delivery, channel-specific attributes, investor pricing, and program features. Data comes from more than 50 interviews, and both proprietary and partnership surveys of more than 100 firms and more than 75 managed account sponsors, asset managers, and third-party providers. Benefits: y Review the projected growth of managed accounts, including the growth of various product types in the managed account space y Understand how managed account sponsors are responding to the uncertain status of the Department of Labor s (DOL) Conflict of Interest Rule y Gain insight into how managed account sponsors, previously distracted by robo-advice and the DOL Rule, are refocusing their efforts on building out consolidated platforms Questions Answered: y What is the size of the managed account space? y How far along are sponsors in developing consolidated platforms? y How much longer will it take firms to get their assets consolidated? y Will all firms consolidate their assets? Subscription details $19,000 Purchase Includes Annual 165 PAGES 114 EXHIBITS y Digital copy and hardcopy in color y Online access to 24 related reports y Unlimited online firm-wide access y Exhibits in Excel y Key findings y Analyst support y Interactive Report Dashboards NEW y Executive Summary Video NEW Research Included with Subscription y 14 years of The Cerulli Report U.S. Managed Accounts y Managed Accounts: Asset Manager Distribution Roadmap 2010 y Managed Account Due Diligence Groups 2009 y State of Managed Accounts: Industry Outlook 2009 y Managed Accounts: Economics of Asset Managers, Sponsors, and Advisors 2008 y Managed Accounts: Impact of Overlay on Asset Managers 2007 y State of Managed Accounts 2006 For more information, contact us: ``info@cerulli.com cerulli Interactive Report Dashboards NEW Experience Cerulli s digital analytics platform and explore interactive data from this report We are pleased to include these interactive report dashboards with your subscription: 1. Industry Overview: Explore industry assets by program, channel, packaging, and discretion, 2004-2016. 2. Sponsor Firm Asset Breakdown: Analyze the detailed breakdown of sponsor firms by channel and program. 3. Commission/Fee Dashboard: Review commission and fiduciary assets by channel, 2007 2015. Cerulli Associates info@cerulli.com www.cerulli.com

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Chapter 1 2017 Managed Account Trends Exhibit 1.04 Sponsors View on the Importance of Various Features in a Consolidated Managed Account Platform, 2017 Sponsors rate a single portal for advisor log-ins and a single performance report for clients as the two most-important features of a consolidated platform. Source: Cerulli Associates 100% 90% 80% 70% 60% 19% 4% 9% 21% 32% 2% 6% 9% 32% 36% 47% 2% 13% 6% 47% 60% 38% 50% 40% 30% 20% 10% 77% 70% 66% 62% 55% 51% 40% 34% 45% 17% 0% Single technology portal with single sign-on Single performance report for clients Integration of back-office services Pricing that is householded Single investment contract that covers allprograms Integration of middle-office activities Singular branding that covers all program types UMH (asset location) A flat fee across all program types Very important Somewhat important Not important Executives rate outward-facing elements of a consolidated platform very high on the list of features required in a consolidated managed accounts architecture. A majority (77%) believe that a single technology portal with a single sign-on is a very important component, and a majority (70%) believe that a single performance report for clients is also very important. These two components are the gateways into the experience of the platform for the client and the advisor. Managed account leaders rightly value this experience highly because most executives interviewed by Cerulli primarily view the consolidation project as a way to simplify and streamline the collaboration between advisors and clients and the interaction of both with the firm. Integration of back-office services is rated just below a single portal and client performance report, with 66% of respondents agreeing that it is very important. At the heart of a UMA is the ability to exercise overlay control so that trades from various sources do not collide, causing inadvertent debit positions or wash sales. Overlay control is fundamentally a back-office operation because it involves proper trade and cash settlement. According to executives at managed account sponsors, householded pricing is also important, with 62% of executives scoring it as very important. One cannot underestimate the significance of householded pricing to the success of a consolidated platform. It provides a real economic motivation for clients to consolidate all their assets on a unified architecture. 28 The Cerulli Report U.S. Managed Accounts 2017

Table of Contents Table of Contents: Expanded Key Questions Answered... 15 1. Where does the industry stand on the road to platform consolidation?...15 2. How are managed account sponsors proceeding in light of the uncertainty around the Conflict of Interest Rule?...16 3. How fast is the market for managed accounts growing?...17 4. What is the attitude of managed account sponsors toward advisory fees?...18 5. What is driving the growth of rep-as-advisor programs?...19 6. What forms of discretion will predominate over the next three years?...20 7. How are asset managers responding to the growth of third-party strategists?...21 Chapter 1: 2017 Managed Account Trends: Consolidation, Centralized Discretion, and Platform Rationalization.... 22 Top Priorities of Managed Account Sponsors...24 Exhibit 1.01. Top Priorities for Sponsors of Managed Account Sponsors, 2017....24 Exhibit 1.02. Managed Account Sponsors Attitudes Toward Platform Consolidation, 2017...25 Timeline for Platform Consolidation in the Industry....27 Exhibit 1.03. Managed Accounts Sponsors Estimated Time to Complete Consolidation, 2017...27 Exhibit 1.04. Sponsors View on the Importance of Various Features in a Consolidated Managed Account Platform, 2017...28 Impact of the DOL Conflict of Interest Rule...29 Exhibit 1.05. Managed Account Sponsors Attitudes Toward Possible Reversal of the DOL Rule, April 2017...29 Fee Dispersion....30 Exhibit 1.06. Managed Accounts Sponsors Attitudes Toward Fee Dispersion in Light of the DOL Rule, 2017...30 Exhibit 1.07. Sponsors Opinions about the Spread Between Maximum and Minimum Fees for Managed Account Solutions, 2017..31 The Future of Advisory Fees...31 Exhibit 1.08. Sponsors Perception of Advisory Component of a Managed Account Fee, 2017....32 The Conflict of Interest Rule and the Reduction of Risk...32 Exhibit 1.09. Sponsors Beliefs About the Future of Advisory Fees Over the Next Five Years, 2017...32 Exhibit 1.10. Managed Account Sponsors Predictions on Which Forms of Discretion Will Increase or Decrease, 2017...34 Exhibit 1.11. Managed Account Sponsors Opinions of Third-Party Strategists, 2017....35 Digital Advice....36 Exhibit 1.12. Digital Advice Providers by Assets Under Management, 2016E....36 Exhibit 1.13. Digital Advice Initiatives at Traditional Advisory Firms, 2017...36 Exhibit 1.14. Top Priorities for Asset Managers, 2017...37 The Cerulli Report U.S. Managed Accounts 2017 7

Table of Contents Priorities of Asset Managers...38 Exhibit 1.15. Asset Managers Perception of Platform Consolidation Among Sponsor Clients, 2017...38 Product Initiatives of Asset Managers....39 Exhibit 1.16. Asset Managers Product Initiatives, 2017...39 Exhibit 1.17. Asset Managers Opinions about Future Revenue-Sharing Arrangements in Light of the DOL Rule, 2017....41 Evolving Landscape of Discretion...43 Exhibit 1.18. Asset Managers Opinions about the Direction of Portfolio Discretion, 2017...43 Asset Managers as Strategists...44 Exhibit 1.19. Asset Managers Plans for Developing Asset Allocation Strategies, 2017....44 Chapter 2: Managed Accounts Overview.... 45 Exhibit 2.01. Managed Account Assets and Growth, 2002-2016....47 Exhibit 2.02. Managed Account Industry Net Cash Flow by Program Type, 2008-2016...48 Exhibit 2.03. Managed Account Assets and Projections by Program Type, 2016-2020E....49 Exhibit 2.04. Managed Account Assets by Vehicle, 2010 vs. 2016...50 Exhibit 2.05. Managed Account Assets by Discretion, 2014-2016...51 Exhibit 2.06-Part 1. Top-35 Managed Account Program Sponsors Across All Industry Segments by Marketshare, 2006-2016...52 Exhibit 2.06-Part 2. Top-35 Managed Account Program Sponsors Across All Industry Segments by Marketshare, 2006-2016...53 Exhibit 2.07-Part 1. Top-35 Sponsors by Managed Account Segment Assets, 2016...54 Exhibit 2.07-Part 2. Top-35 Sponsors by Managed Account Segment Assets, 2016...55 Exhibit 2.08. Managed Account Assets and Projections by Discretion, 2012-2020E...56 Exhibit 2.09. Managed Account Assets and Projections by Packaging, 2012-2020E...57 Exhibit 2.10. Managed Account Assets and Projections by Channel, 2012-2020E...58 Chapter 3: Program Sponsor Channel Analysis... 59 Exhibit 3.01. Managed Account Assets by Distribution Channel, 2002-2016...61 Exhibit 3.02-Part 1. Top-35 Sponsors by Managed Account Assets, 2016....62 Exhibit 3.02-Part 2. Top-35 Sponsors by Managed Account Assets, 2016....63 Exhibit 3.03. Wirehouse Mix of Managed Account Assets by Program Type, 2002-2016...64 Exhibit 3.04. Independent Broker/Dealer Mix of Managed Account Assets by Program Type, 2002-2016...65 Exhibit 3.05. Regional Channel Mix of Managed Account Assets by Program Type, 2002-2016...66 Exhibit 3.06. Direct Channel Mix of Managed Account Assets by Program Type, 2002-2016...67 Exhibit 3.07. Bank Channel Mix of Managed Account Assets by Program Type, 2002-2016...68 Exhibit 3.08. Third-Party Vendor Mix of Managed Account Assets by Program Type, 2002-2016....69 Exhibit 3.09. Top Advisory and Nonadvisory Third-Party Managed Account Providers, 2016...70 8 The Cerulli Report U.S. Managed Accounts 2017

Table of Contents Chapter 4: Mutual Fund Advisory Programs.... 71 Exhibit 4.01. Mutual Fund and ETF Advisory Program Assets, 2001-2020E...73 Exhibit 4.02. Mutual Fund Advisory Program Assets by Program Type: Packaged, Hybrid, and Open, 2004-2016...74 Exhibit 4.03. Mutual Fund Advisory Program Assets by Asset Class, 2008-2016...75 Exhibit 4.04. Mutual Fund Advisory Sales, Redemptions, and Net Cash Flows, 2006-2016...76 Exhibit 4.05. Top-15 Mutual Fund Advisory Program Sponsors by Marketshare, 2006-2016...77 Exhibit 4.06-Part 1. Top-40 Mutual Fund Advisory Programs, 2016....78 Exhibit 4.06-Part 2. Top-40 Mutual Fund Advisory Programs, 2016....79 Exhibit 4.07. Estimated Number of Mutual Fund Advisory Program Accounts, 2002-2016...80 Exhibit 4.08. Mutual Fund Advisory Program Average Account Size, 2002-2016...81 Exhibit 4.09. Mutual Fund Advisory Program Average Annual Program Fee vs. Annual All-In Client Fee, 2006-2016....82 Exhibit 4.10. Mutual Fund Advisory Sponsors Use of Institutionally Priced Share Classes, 2008-2016...83 Exhibit 4.11. Advisors: Anticipated Change in Allocation to Mutual Fund Advisory Platforms, 2016 vs. 2018E...84 Exhibit 4.12. Top-5 ETF Advisory Programs, 2016...85 Chapter 5: Rep-as-Portfolio-Manager Programs... 86 Exhibit 5.01. Rep-as-Portfolio-Manager Program Assets, 2000-2020E....88 Exhibit 5.02. Rep-as-Portfolio-Manager Program Assets by Investment Vehicle, 2008 vs. 2016...89 Exhibit 5.03. Rep-as-Portfolio-Manager Program Assets by Asset Class, 2016....90 Exhibit 5.04. Rep-as-Portfolio-Manager Program Sales, Redemptions, and Net Cash Flows, 2010-2016....91 Exhibit 5.05. Top-15 Rep-as-Portfolio-Manager Program Sponsors by Marketshare, 2006-2016...92 Exhibit 5.06. Top-15 Rep-as-Portfolio-Manager Program Sponsors, 2016...93 Exhibit 5.07. Estimated Number of Rep-as-Portfolio-Manager Program Accounts, 2000-2016....94 Exhibit 5.08. Rep-as-Portfolio-Manager Program Average Account Size, 2000-2016...95 Exhibit 5.09. Rep-as-Portfolio-Manager Program Average Annual Client Fees, 2000-2016...96 Exhibit 5.10. Advisors: Anticipated Change in Allocation to Rep-as-Portfolio-Manager Platforms, 2016 vs. 2018E...97 Chapter 6: Rep-as-Advisor Programs... 98 Exhibit 6.01. Rep-as-Advisor Program Assets, 1999-2020E...100 Exhibit 6.02. Rep-as-Advisor Program Assets by Product Type, 2009-2016...101 Exhibit 6.03. Rep-as-Advisor Program Sales, Redemptions, and Net Cash Flows, 2010-2016...102 Exhibit 6.04. Top-15 Rep-as-Advisor Program Sponsors by Marketshare, 2009-2016...103 Exhibit 6.05. Top-15 Rep-as-Advisor Program Sponsors, 2016...104 Exhibit 6.06. Estimated Number of Rep-as-Advisor Program Accounts, 2006-2016...105 Exhibit 6.07. Rep-as-Advisor Program Average Account Size, 2006-2016...106 The Cerulli Report U.S. Managed Accounts 2017 9

Table of Contents Exhibit 6.08. Rep-as-Advisor Program Average Annual Client Fees, 2008-2016....107 Exhibit 6.09. Advisors: Anticipated Change in Allocation to Rep-as-Advisor Platforms, 2016 vs. 2018E....108 Chapter 7: Unified Managed Account Programs... 109 Exhibit 7.01. Unified Managed Account Program Assets, 2005-2020E...111 Exhibit 7.02. Unified Managed Account Program Sales, Redemptions, and Net Cash Flows, 2010-2016....112 Exhibit 7.03. Unified Managed Account Assets by Investment Vehicle, 2008-2016...113 Exhibit 7.04. Top-15 Unified Managed Account Program Sponsors by Marketshare, 2008-2016...114 Exhibit 7.05. Top-20 Unified Managed Account Programs, 2016...115 Exhibit 7.06. Estimated Number of UMA Program Accounts, 2007-2016...116 Exhibit 7.07. Unified Managed Account Program Average Account Size, 2007-2016...117 Exhibit 7.08. UMA Program Average Explicit Annual Fee vs. Average Annual All-In Client Fee, 2013-2016...118 Exhibit 7.09. Advisors: Anticipated Change in Allocation to Unified Managed Accounts Platforms, 2016 vs. 2018E...119 Chapter 8: Separate Account Sponsor Programs... 120 Exhibit 8.01. Separate Account Program Assets, 2000-2020E....122 Exhibit 8.02. Total Separate Account Program Assets and Percent of Assets in Subadvisory Separate Accounts, 2000-2016...123 Exhibit 8.03. Separate Account Industry Sales, Redemptions, and Net Cash Flows, 2007-2016...124 Exhibit 8.04. Top-15 Separate Account Program Sponsor by Marketshare, 2006-2016........................................ 125 Exhibit 8.05. Top-25 Separate Account Program Sponsors by Total Separate Account Assets, 2016....126 Exhibit 8.06. Top-25 Subadvisory Separate Account Program Sponsors, 2016...127 Exhibit 8.07. Top Dual-Contract and Proprietary Separate Account Program Sponsors, 2016...128 Exhibit 8.08. Estimated Total Separate Account Program Industry Accounts, 2006-2016...129 Exhibit 8.09. Separate Account Program Average Account Size, Subadvisory and Open, 2006-2016....130 Exhibit 8.10. Subadvisory Separate Account Client Average Relationship Size, 2003-2016...131 Exhibit 8.11. Subadvisory Separate Account Average Annual Client Fees, 2002-2016...132 Exhibit 8.12. Advisors: Anticipated Change in Allocation to Separate Account Platforms, 2016 vs. 2018E...133 Chapter 9: Separate Account Asset Managers... 134 Exhibit 9.01-Part 1. Top-100 Separate Account Program Asset Managers, 2016....136 Exhibit 9.01-Part 2. Top-100 Separate Account Program Asset Managers, 2016....137 Exhibit 9.02. Top-15 Separate Account Program Asset Managers, 2006-2016....138 Exhibit 9.03. Top-15 Separate Account Program Asset Management Groups, 2016....139 Exhibit 9.04. Largest Growth and Core Managers, 2016...140 Exhibit 9.05. Largest Value, Global, and International Managers, 2016...141 10 The Cerulli Report U.S. Managed Accounts 2017

Table of Contents Exhibit 9.06. Largest Fixed-Income, Balanced, and Other Managers, 2016...142 Exhibit 9.07. Separate Account Program Asset Allocation Shift, 2001-2016...143 Exhibit 9.08. Asset Manager-Reported Range and Asset-Weighted Average Management Fees, 2016...144 Exhibit 9.09. Top-15 Model Portfolio Managers, 2016...145 Exhibit 9.10. Top-15 Model Portfolio Strategies, 2016...146 Exhibit 9.11. Model Portfolio Asset Allocation, 2010-2016...147 Chapter 10: Advisor Use of Managed Accounts... 148 Exhibit 10.01. Fiduciary Asset Sizing, 2005-2015...150 Exhibit 10.02. Advisor-Reported Portfolio Discretion Breakdown by Channel, 2016...151 Exhibit 10.03. Asset-Based Fees by Managed Account Program Type and Channel, 2016....152 Exhibit 10.04. Advisory Fee by Client Assets, 2016....................................................................... 153 Exhibit 10.05. Advisor Portfolio Construction Process by Channel, 2016...154 Exhibit 10.06. Portfolio Construction Strategy by Channel, 2016...155 Exhibit 10.07. Average Asset Allocation for Moderate Risk Investors by Channel, 2016....156 Exhibit 10.08. DOL Conflict of Interest Rule s Impact on Product Use, 2016....157 Glossary... 158 Index of Companies... 164 The Cerulli Report U.S. Managed Accounts 2017 11

Index of Companies Index of Companies Ameriprise... 43, 71, 87, 92, 93, 104, 145 AssetMark... 26 Bank of America/Merrill Lynch... 15, 17, 25, 26, 43, 45, 48, 59, 71, 73, 97, 109, 111, 112, 114, 122, 127, 139 Betterment... 37 BlackRock... 136, 138, 139 Brandes Investment Partners... 141 Brinker Capital... 126 Cambridge Investment Research... 92 Cetera... 104 Charles Schwab... 37, 55, 59, 67, 70, 85, 128 ClearBridge... 136 Commonwealth Financial Network... 62, 79 DA Davidson... 87, 92, 93 Delaware Investments... 134, 136, 145 Eaton Vance... 136, 138, 139 Edward Jones... 19, 46, 47, 53, 62, 66, 71, 77, 98-100, 102, 103, 105, 106, 115 Envestnet... 26, 33, 43, 60, 70 Federated... 136, 138 Fidelity Investments... 59, 67, 70, 71, 77, 79, 114, 115, 125, 126, 128 FolioDynamix... 26 GW&K... 136 Hilliard Lyons... 19, 104, 120, 126 Invesco... 37 J.P. Morgan Chase..., 79, 93, 114, 115, 127 Janney Montgomery Scott... 19, 87, 93, 104, 126 JemStep... 37 John Hancock... 120, 126 Kayne Anderson Rudnick... 140 Lazard Asset Management... 136, 141 Legg Mason... 139 Lockwood/Pershing... 59, 70, 79 LPL... 71, 77, 79, 87, 93 Mercer... 43 MFS... 145 164 The Cerulli Report U.S. Subadvisory Markets 2017

Index of Companies Morgan Stanley... 15, 17, 25, 26, 42, 45, 48, 55, 59, 71, 73, 109, 111, 112, 114, 120, 122, 125, 128 Northwestern Mutual... 79, 104 Nuveen... 136, 138, 139, 145 Oppenheimer... 92 PIMCO... 138, 146 Raymond James... 93, 104, 115, 126 RBC... 87, 93, 115 Securities America... 87, 92, 93 Smith Barney... 139 SunTrust... 104 TI... 114, 115 UBS... 59, 115, 136 US... 114, 115 Vanguard... 37, 42 Wells Fargo... 59, 93, 115, 136, 138, 139 Western Asset Management... 146 Wilshire... 43 The Cerulli Report U.S. Subadvisory Markets 2017 165