Legacy Smith Barney managed funds program closed

In a move that further simplifies its platform since acquiring Smith Barney, Morgan Stanley Wealth Management has closed a large managed mutual fund program to new clients.

The program, called TRAK Fund Solution, was closed to new investors on June 30.

Fund Solution includes access to more than 300 mutual funds. It managed $27.7 billion and about $2 billion has moved to other types of accounts since the closure was announced, according to Christine Jockle, a Morgan Stanley spokeswoman. The rest remains, for the time being, in the program.

“Some financial advisers are sorry to see it phased out, but we’re communicating the alternatives to them,” said Ms. Jockle, of the firm’s broker force which, at 16,316 as of June 30, is largest in the U.S.

The firm also has the largest business in the $3.6 trillion managed accounts industry, capturing about a fifth of the money in such accounts, though it’s placed far less emphasis on mutual fund programs than other brokers, such as Commonwealth Financial Network, Edward Jones and Wells Fargo Advisors.

Instead, many Morgan Stanley brokers use other types of programs, including those in which they exercise discretionary control over client portfolios, known in industry argot as representative as portfolio manager or “rep-as-PM.”

Tom O’Shea, a managed-accounts researcher with Cerulli Associates, said broker-dealers are seeking the “holy grail” — one, unified platform that incorporates all of the investment programs offered to each client.

“The broader takeaway is not that managed mutual fund wrap accounts are declining. They’re actually growing,” said Mr. O’Shea. The programs grew by 20% in the 12 months ended March 31. “The real issue is that for firms like Morgan Stanley they want to get all of their investment vehicle types on one platform.”

In mutual fund advisory accounts, a range of fees on the selection, management and advice on funds are “wrapped” into an all-in levy, which is how accounts get their name.

New York-based Morgan Stanley completed its acquisition of the Smith Barney brokerage last year.
Smith Barney was an early proponent of mutual fund wrap programs, launching an earlier version of TRAK in 1991. Fund Solution was launched in 1994, according to a company official.

Mutual fund wraps were relatively new then, after having been pioneered by firms including Fidelity Investments in the late 1980s. Fidelity still has the largest mutual fund advisory program, managing nearly $133 billion, according to Cerulli.
News of the program’s closure was first reported Sept. 12 by Reuters.