Custom Portfolios: Power to the People

Technology is creating a revolution in the managed accounts market. Once the exclusive realm of private banking for the very rich, automated basket-trading and fractional shares technologies are making individualized portfolio services available at a cheaper price, lowering the minimum investment threshold and expanding the market to make portfolio investment services available to retail investors in far lower income brackets. In a new report, Custom Portfolios: Power to the People, Celent Communications examines this new market, providing an analysis of market segmentation, distribution channels, product types, and future trends.

Celent expects that over the next few years custom portfolio services will be integrated with a wide variety of financial products, including wealth management services, 401(k) programs, and variable annuities. Providing many of the advantages of traditional managed accounts at lower cost, the potential market for custom portfolios is substantial, especially if provided through investment professionals rather than direct-to-retail. Celent predicts that custom portfolios — including folios, fractional shares accounts, and online wraps — will reach US$113 billion in assets by 2006, a figure equivalent to 11 percent of the traditional managed accounts market.

"Some might see online folios as yesterday's news, a relic of the dot-com era," says Celent analyst Neil Katkov, author of the report, "but the best of the custom portfolio services have a real future, both in providing low-cost portfolio-based brokerage to the mass market, and in reducing the costs associated with administering higher-end online managed accounts."