LPL lowers investment minimum to boost managed portfolio sales

NEW YORK, July 11 Wed Jul 11, 2012 12:19pm EDT

NEW YORK, July 11 (Reuters) - Independent brokerage LPL Financial is lowering account minimums for managed portfolios of mutual funds and exchange-traded funds, the latest example of Wall Street firms making money management accessible to a broader group of investors.

LPL, the largest U.S. independent brokerage network with about 13,000 advisers, on Wednesday reduced the minimum needed to invest in its "model wealth portfolios" program to $25,000 from $100,000. The change makes LPL among the lowest minimums in the business and half the amount required for similar programs at rivals like Fidelity.

The Boston-based company also added strategies from three new firms: J.P. Morgan Asset Management, AlphaSimplex Group and Morningstar.

Most mutual fund advisory programs usually require $25,000 to $50,000, though some charge as much as $100,000, according to research firm Cerulli Associates. A total net fee of 2 percent is typical among brokerages.

Managed portfolios are a fast-growing corner of the wealth management business, industry analysts say. They let investors buy a package of funds that pursue a certain strategy - emerging markets growth, absolute return or tax efficiency, for example - at lower cost than for customized money management programs.

Investors incur another layer of fees for these programs, and analysts say managed portfolios overall have underperformed the market in recent years.

The cost to investors varies. LPL says total fees, including advisory and program fees, paid by its customers can range as high as 2 percent of money under management, but that most investors pay between 1.25 to 1.5 percent, said John Moninger, LPL's head of advisory and brokerage consulting.

Still, brokerages across the industry are expanding their sales of model portfolios because they centralize investment selection - not all advisers are expert stock-pickers - and free up brokers to spend more time expanding their practices.

"Broker-dealers see value from a compliance standpoint - they have more control over investments," Cerulli analyst Patrick Newcomb said, noting it also lets advisers find new clients and provide more financial advice.

Cerulli data shows packaged portfolio programs have been growing rapidly throughout the industry. Mutual fund advisory programs have grown to $660 billion in assets at the end of 2011 from $393 billion at the end of 2008, of which packaged portfolios grew their share to 50 percent from 37 percent.

It is not immediately clear, however, if these programs have been fruitful for investors. LPL could not immediately provide performance figures for clients in its model portfolio program.

Cerulli, a research firm that tracks the money management industry, said a recent industry-wide study of these programs showed managed portfolios on average generated returns of 10 percent in 2010 and 2011. That lagged a 13 percent rise in the benchmark S&P 500 Index of large U.S. companies.

Some portfolios, to be sure, focus on capital preservation and other more conservative strategies.

Wall Street brokerages have for decades offered fee-based money management programs, such as separate accounts, unified managed accounts and programs where the broker manages investments. Total assets for fee-based managed accounts reached $2.55 trillion last year, up from $1.39 trillion in 2008.

But firms require greater wealth to participate in these plans. Unified managed account's typically require $250,000, while separately managed equities accounts usually require $100,000.

A more recent innovation has been offering menus of standardized, centrally managed funds that are affordable to more investors. The explosive growth of exchange traded funds, which let investors place bets on different assets and sectors, have made it easier to construct portfolios along certain investment themes.

Like other brokerages, LPL wants to expand advisory programs that generate steady fees. Since it began in February 2008, the model wealth portfolio program has attracted $8.7 billion in assets - a small slice of the $110.8 billion LPL had under various fee-based programs at the end of March.

About one in four LPL brokers use the platform, but Moninger expects lower minimums will increase participation.

"We had many advisers tell us they liked the program, but wished they could offer it to more clients," he said.

LPL's program pales in size against rivals. Fidelity's portfolio advisory service, which requires $50,000 and charges a net advisory fee of up to 1.7 percent, has attracted $93 billion.

Edward Jones' advisory solutions program, which also requires $50,000, has grown to $74 billion since 2008.

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