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Portfolio construction key, study says

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By Lisa Shidler

June 13, 2008 12:30 pm ET

Both asset managers and advisers are vying to provide new retirement-income strategies for investors, according to a new report.

The analysis, titled “Product Development in an Evolving Portfolio Construction Environment,” was done by Boston-based Cerulli Associates Inc. and obtained exclusively by InvestmentNews.

Two-thirds of asset managers surveyed are planning to develop alternative investments or products that blend traditional and alternative strategies, according to the study.

The vast majority of offerings are packaged products, the report says. In 2007, open-end funds, closed-end funds, ETFs and variable annuities made up $8.9 trillion of the $10.2 trillion in assets under management. Portfolio solutions accounted for only $1.3 trillion under management.

Despite these findings, the study shows that there are still opportunities for portfolio construction. Faced with loss of controls and declining profit margins, many asset managers hope to develop higher fee revenue from retirement-income strategies and other advice-product solutions.

“Broker/dealer home offices and platforms want to maintain control over portfolio construction, and many advisers still view portfolio construction as the principal value they add to the client relationship, which may limit the opportunity for asset-manager-controlled-portfolio-solution-type products,” the report stated.

The majority of asset managers agreed that financial advisers currently enjoy the greatest degree of control over portfolio construction. But they believe that broker-dealers will acquire more control over the next five to 10 years.

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