Glossary We designed the following research tool to help our clients navigate our publications, The Cerulli Report and The Cerulli Edge series. Our Glossary of Terms provides definitions to commonly used terms found in Cerulli research. Alternatives Cerulli develops its liquid alternative universe by collecting opinions in an annual survey of asset managers, reviewing various research companies’ alternative categories (specifically, Strategic Insight/SIMFUND, Morningstar, Lipper, and Investment Company Institute), and conducting a thorough fund-by-fund analysis of individual strategies. Cerulli’s liquid alternative product universe includes the following categories: absolute return, alternative energy, commodity, currency, event driven, global macro, hedged equity, infrastructure, inverse or bear market, inverse with leverage, leverage, long/short credit, long/short equity, managed futures, market neutral, master limited partnership, multi-strategy, nontraditional bond, private equity, and volatility. Cerulli uses Strategic Insight/SIMFUND to create its proprietary universe. For institutional markets, alternative investments include hedge funds and private investments, including private equity, venture capital, private debt, private real estate, infrastructure, and other hard assets (e.g., energy partnerships, timber investments, commodities, and other investments such as farmland). While many of the asset classes, and in some cases, general strategies, are similar across registered and unregistered products, investment in institutional alternative funds is restricted to accredited investors or qualified purchasers. In general, institutional alternative investments tend to be less liquid, have increased use of leverage and derivatives, and fewer restrictions on shorting. Asset Manager Addressable Marketplace (AMAM) Cerulli created the asset manager addressable marketplace (AMAM) distribution model to more accurately present the true opportunity for U.S. asset managers. Overlaid on total U.S. assets under management, AMAM removes non-professionally managed assets and adjusts for double-counting, thus presenting the cleanest view of the aggregate size of the asset management industry in the United States. Asset Manager Addressable Marketplace Distribution Model To size the true opportunity available in the professional asset management marketplace, Cerulli created the Asset Manager Addressable Marketplace (AMAM) distribution model, which removes non-professionally managed assets and adjusts for double-counted assets. Asset Manager Tiers Tier I: Defined by Cerulli as having more than $20 billion in advisor-sold long-term mutual funds, ETFs, and separate account consultant program assets. Tier II: Defined by Cerulli as having between $10 billion and $20 billion in advisor-sold assets and separate account consultant program assets. Tier III: Defined by Cerulli as having less than $10 billion in advisor-sold assets. Assets Under Advisement (AUA) Financial assets in which a firm provides servicing, consultation, or advice, but does not have direct discretionary investment authority. Investment decisions are typically made by account owners. For example, a firm could act as an investment consultant or subadvisor providing advice on fund selection or asset allocation, which would be included in AUA. Assets Under Management (AUM) Assets governed by a firm/advisor through continuous and regular supervisory or management. Firms/advisors make decisions regarding these managed assets or have varying levels of discretion over these assets. Bank Trust Firms with retail branch banking presences core to their business, also maintaining a trust department. It can be standalone trust company or a trust platform within a larger commercial/retail bank. State and nationally registered trust companies fall into this category (Cerulli sizes them separately). However, they must provide wealth management services to be included in our sizing. Cerulli Scalable Advice Continuum Guidance: The practice of offering general information on widely accepted best practices in personal finance. Without any level of customization, providers need to cast a broad net here. Examples include suggestions to save more, spend less, and general asset allocation information. Mass Customized Guidance: As the name implies, this level of guidance adds a bit of variability in information delivered, but is still not individually customized. The most typical example at this level is the asset allocation questionnaire through which, after completing, investors receive a general, broad, asset allocation suggestion. The results are often limited to a small solution set and are static in nature. Modular Advice: This level of advice sees the addition of some art to pure calculation. A reasonable level of information about the investor is collected, resulting in the provision of one or more solutions. The investor’s feedback is then used to tweak the results to include preferences and provide recommendations that are specific to the investor’s circumstances. Examples of modular advice include stand-alone retirement or college-funding calculators that are either delivered online or during one-on-one consultations. Ongoing Advice: Here we see the addition of a relationship aspect to the advice-delivery process. In addition to running initial calculations, an advisor will monitor the investor’s progress towards their financial goals and proactively contact the investor on a regular basis. This level represents a large share of current advisory relationships, reflecting a delicate balance of investor expectations and an advisor’s time commitment to each investor. The advisor has an understanding of the investor’s financial position and expectations but is generally most focused on the investment management (and possibly insurance) part of the equation. Financial Planning: This level sees the expansion of the investor relationship beyond investment management to encompass the six-step process as outlined by the CFP® Board of Standards, whether or not it is delivered by a CFP® accredited advisor. Though the engagement could be limited by agreement of the investor and advisor, these relationships are most often ongoing and comprehensive in nature with the exact scope of the engagement defined in a written agreement. Holistic Service: The final echelon of advice incorporates all the elements of financial planning and expands beyond the milieu of services typically offered in a financial planning setting to include lifestyle issues. Examples of these additional areas include life planning or coaching, teaching heirs about finance, or concierge-type services. Collective Investment/Trusts Funds (CITs) The Office of the Comptroller of the Currency (OCC) regulates collective investment funds; they are exempt from SEC regulation and are not governed by the Investment Company Act of 1940. They are defined in the Code of Federal Regulations (12 CFR 9.18) as including two types of fund structures—bank common trust funds, frequently called A1 funds in reference to the paragraph of the Code in which they are defined, and collective investment funds or collective investment trusts (CITs), similarly called A2 funds. A2 funds can only contain assets from retirement, pension, profit sharing, stock bonus, or other trusts exempt from federal income tax. Core Market Cerulli assigns each advisory practice a core market range based on the investable assets of the majority of the practice’s client relationships. Advisors are excluded from core market exhibits if Cerulli deems them generalists not focusing on a specific core market. Mass Market: The majority of the practice’s client relationships are less than $100,000 of investable assets. Middle Market: The majority of the practice’s client relationships are between $100,000 and $500,000 of investable assets. Mass-Affluent Market: The majority of the practice’s client relationships are between $500,000 and $2 million of investable assets. Affluent Market: The majority of the practice’s client relationships are between $2 million and $5 million of investable assets. High-Net-Worth Market: The majority of the practice’s client relationships are more than $5 million of investable assets. Defined Contribution Investment-Only (DCIO) The defined contribution (DC) market includes all assets managed in DC plans, while the DCIO market includes only assets managed by investment managers that are not affiliated with a recordkeeping platform (also called nonproprietary). For example, the DCIO market would include any DC assets managed by Fidelity except for those funds managed in a Fidelity administered DC plan, which would be considered proprietary. Digital Advice A fully automated online investment service platform or an advisor-assisted digital wealth manager offering digital tools to enhance client engagement and scale their book of business. Automated online investment service (also known as a robo-advisor): No financial advisor involved; investors complete a simple profile and risk tolerance questionnaire online and receive a recommended portfolio. Low-cost automated online platform Online risk profile, asset allocation, automated rebalancing Investment strategy: Passive; composed mostly of exchange-traded funds (ETFs) Advisor-assisted digital wealth manager (hybrid platform): A “hybrid” approach combines an automated online investment service with access to human advisors via phone or video conference. Lower costs Financial planning, risk profiling, asset allocation, and other services available Investment strategy: Passive/Active: ETFs and stocks Direct from Product Manufacturer Proprietary distribution by a product manufacturer (e.g., Janus selling a Janus fund), the relationship is essentially limited to the transaction of purchasing product. Distribution When referring to distribution, Cerulli has identified six models: retail direct, retail affiliated, retail third-party, institutional direct, institutional affiliated, and institutional third-party. Institutional/retail direct: Arrangements in which asset managers gather assets from institutional or retail clients via direct relationships. Importantly, the sales process is conducted using only proprietary resources and personnel and excludes arrangements involving any unaffiliated third-party, or platform. Institutional/retail affiliated: Arrangements in which asset managers gather assets from institutional or retail clients via affiliated or captive third parties, such as via proprietary broker/dealers or private client groups. Institutional/retail third-party: Arrangements in which asset managers gather assets from institutional or retail clients via unaffiliated third parties or platforms. Embedded Advice Funds as products that package an advice component within a mutual fund, or fund-of-funds, structure. The advice that is embedded into the product adds a layer of asset allocation, and diversification, to the portfolio. We count balanced funds, asset allocation funds, and lifestyle (risk-based) and lifecycle (target-date) funds as embedded advice products. Financial Advisor One whose practice has two key elements: the advisor must be primarily serving retail investors and the advisor’s objective must be to manage all of their clients’ money. Investors might maintain multiple financial advisor relationships, but the advisor must be seeking to be the primary financial advice provider for their clients. Financial Advisor Practice Types Money manager: Advisors who build portfolios of individual securities and mutual funds for clients and focus exclusively on asset management. Investment planner: Typically advisors that emphasize asset management as their primary service, but may offer modular planning services such as retirement planning or education funding. Financial planner: Advisor who develops complete financial plans for clients based on an extensive analysis of their assets and liabilities. Wealth manager: Advisor who specializes in comprehensive wealth management and transfer issues, including stock option planning, executive compensation, complex trust and estate planning, and charitable giving. Generations Baby Boomer: An investor born between 1947 and 1965 Generation X: An investor born between 1966 and 1981 Millennial: An investor born between 1982 and 2004 Silent and Greatest Generation: An investor born before 1947 Glidepath Cerulli defines glidepath as the gradual reduction of risk within a portfolio, achieved by adjusting the allocation of assets to more conservative investments. It reflects long-term expectations of risk, return, and correlations. It is typically used when referring to target-date mutual fund strategies or a derisking pension plan’s funded status “triggers,” which are found in liability-driven investment programs. Head of Household The individual who is most responsible for major financial and investment decisions. Household Balance Sheet Liquid assets: Total value of money market deposit accounts, money market funds, checking accounts, saving accounts, call accounts, and pre-paid cards Mutual funds/Hedge funds: Excludes money market mutual funds, but includes stock mutual funds, tax-free bond mutual funds, government bond mutual funds, and combination and other mutual funds, such as hedge funds Retirement accounts: Comprised of individual retirement accounts (IRAs), Keogh, currently accessible pension plans Other managed assets: Comprised of value of annuities and trusts Other financial assets: Includes loans from the household to someone else, future proceed from lawsuits, royalties, futures, non-public stock, deferred compensation, oil, gas, and mineral investments; cash not elsewhere classified Other residence: Includes land contracts/notes owed to the household and properties other than the principal residence, including 1-4 family residences, time shares, and vacation homes Other nonfinancial assets: Includes gold, silver (including silverware), other metals type, jewelry, gem stones (including antique), cars (antique or classic), antiques, furniture, art objects, paintings, sculpture, textile art, ceramic art, photographs, (rare) books, coin collections, stamp collections, guns, miscellaneous real estate (excluding cemetery), cemetery plots, china, figurines, crystal/glassware, musical instruments, livestock, horses, crops, oriental rugs, furs, other collections (including baseball cards), records, wine, oil/gas/mineral leases or investments, computer, equipment/tools, association or exchange membership, and other miscellaneous assets Other lines of credit: Consists of lines of credit other than those secured by the primary residence Other debt: Includes loans against pensions, loans against life insurance, margin loans, and miscellaneous loans Institutional Asset Management Cerulli considers institutional asset management to consist of investment management for any entity where the ultimate end-investor is an institution rather than an individual. Institutional segments include, but are not limited to: defined benefit, defined contribution, endowments, foundations, insurance general accounts, and subadvisory. Institutional Separate Accounts Discretionary portfolios of individual securities constructed by asset managers that are frequently employed by institutional investors such as endowments, foundations, pensions, etc. (private clients with sufficient assets may use these accounts). The separate account's underlying assets are directly owned by the client and managed by the asset manager, and these accounts are largely GIPS-compliant. They provide investors greater flexibility and the ability to customize holdings. Insurance-Only Agent Insurance firms (agents selling insurance and proprietary asset management products) such as State Farm. Intermediary Channels Wirehouses: Full-service broker/dealer firms, with a heritage of national distribution, investment banking, and brokerage. They have large national advisor and branch advisor networks, who are employees of the B/D. These firms offer a full range of investment services and products, placing emphasis on fee-based pricing through managed accounts. These are Morgan Stanley Wealth Management, Bank of America/Merrill Lynch, Wells Fargo Advisors, and UBS. Bank brokerages: Retail-oriented, branch-based operations that employ dedicated and part-time advisors or platform reps and have a heavy emphasis on packaged products, mutual funds, and annuities. Trust departments and third-party broker/dealers that provide brokerage services to banks on a contract basis are excluded. Firms vary in size from national banks to credit unions and include a mix of organically grown brokerages and regional B/D acquisitions. Examples include JPMorgan Chase and Citizens Bank. For managed account segmentation, CA excludes many larger brokerage organizations affiliated with banks, such as Wells Fargo, whose managed account activity is derived wholly or primarily from its other brokerage affiliate(s). Bank brokerages included in our segmentation are those that derive the majority of their managed account activity from branch-based brokerage networks, such as Chase and SunTrust. Independent broker/dealers (IBD): Broker/dealer firms that have national distribution capabilities, but fragmented advisor coverage and small branches. Firms may be of any size, but most are small (fewer than 1,000 advisors), but it is the largest channel in terms of number of reps. Advisors are affiliated independent contractors rather than direct employees, and may switch broker/dealer firms at any time. These advisors generally bear all the costs of doing business themselves (e.g., office space rental, employee salaries, computers) in return for a higher payout. There is a heavy emphasis on packaged products, mutual funds, and annuities. Examples include LPL Financial, 1st Global, and Cadaret Grant. Regional broker/dealers: Full-service broker/dealer firms offering a range of investment services that include regional investment banks with retail branches, firms with national salesforces, and private wealth arms of NY-based investment banks. These firms often have a strong concentration of offices in one region of the nation and community ties, ranging from five-person shops to 1,000+ reps. Financial advisors are tied employees of the firm. Little or no proprietary products are used. Examples include RBC and Robert W. Baird. Insurance broker/dealers: Firms with national distribution capabilities through historical career agency network, ranging from traditional life companies to quasi-IBDs. These firms place a strong emphasis on proprietary insurance and investment products, but often use third-party subadvisors. This channel also includes firms with both open and closed insurance product selections; however, nonproprietary asset management is always available. Insurance agents are being repositioned as advisors and many traditional insurance B/Ds have shifted to an IBD model. Advisors range from employees/career agents of the B/D to statutory employees to independent contractors. Examples include AXA Advisors, NYLIFE Securities, and Signator (John Hancock). Registered investment advisors (RIA): These firms are independent firms registered with the SEC to provide investment advice for a fee. Rather than building their own infrastructure these firms leverage clearing firms, banks, service agents, and brokerages to conduct trading, recordkeeping, and custody. The practices usually have fewer than 20 advisors, but can range into the hundreds at the largest firms. An example is Fisher Investments. Dually registered: These advisors register as an independent registered investment advisor (SEC registration) and also maintain a broker/dealer (FINRA licensed) registration. Investor Advice Orientation Advice orientation is the approach each household takes regarding advice and investment decisions. It is important to note that advice orientation is a self-placement of the household and therefore is not necessarily a correlation to their primary provider channel. Many investors identify themselves as self-directed, yet may still use a traditional advisor when purchasing products, though the nature of their relationship might be nondiscretionary. However, a household that considers itself advisor-directed is likely to be in a full discretionary relationship. As such, how households make decisions dictates the amount of influence financial professionals have over product and investment choices. Self-directed: Households that use a variety of information sources to make their own investment decisions Advice for special events: Households that use a variety of information sources to make their own investment decisions, but also consult an investment professional or advisor for specialized needs (e.g., alternative investments or tax advice) Advisor-assisted: Households that regularly consult with an investment professional or advisor, but also obtain additional information on their own and make most of their own final decisions Advisor-directed: Households that rely on an investment professional or advisor to make most or all of their investment decisions Investable Assets Financial assets including: cash in checking or savings accounts, stocks, bonds, mutual funds, insurance policies, and IRAs. Excludes: primary residence, real estate, closely-held businesses, or assets in any employer-sponsored savings or retirement plans including a 401(k) plan. Investment Consultants on Behalf of Retail Clients High-net-worth investors will occasionally engage with investment consultants in order to address specific issues within the investor's portfolio such as due diligence and manager selection. This engagement may be within the framework of a family office or a standalone retail engagement. Liability-Driven Investing (LDI) Broadly defined, Cerulli uses the term liability-driven investing (LDI) to describe corporate defined benefit plan sponsors identifying plan liabilities as the most appropriate funding strategy. Managed Accounts (Broker/Dealer) Defined Managed accounts is the umbrella term used by Cerulli to describe all fee-based advisory programs at broker/dealer firms. Within these programs, investors receive a wrapped set of services, including client profiling, asset allocation, money management, trading, custody, clearing, and performance reporting. Managed account platforms implement fee-based advisory business through the affiliated RIA or broker/dealers. A goal of Cerulli’s coverage of the managed account industry is to illuminate how clients are being serviced through broker/dealers in a fee-based arrangement, as opposed to commission or transaction-based models. Therefore, we do not include trust businesses and private accounts run for high-net-worth clients in our research and analysis as the addition of these services would suggest inclusion of a much larger pool of assets. In order to accurately size the broker-sold managed account industry, a consistent standard must be applied to assets that Cerulli tracks. Below are some of the common characteristics for identifying and determining the inclusion of a managed account program in our market sizing. Program services are distributed through a broker/dealer Program assets are held in an advisory (regulated by the SEC) arrangement Advisors providing services to clients in the program are FINRA-registered, or are independent RIAs using a platform provided by a third party (g., Charles Schwab, Fidelity) Clients are provided with Schedule H of Form ADV Advisor receives asset-based fee for advice Program has a name and is marketed as such Each of the segments of the larger managed account industry, while comprising different products or delivered in different formats, all contain the following six key attributes: client profiling, asset allocation, ongoing monitoring, consolidated statements, identifiable fee, and asset-based fee. Collectively, these attributes make managed accounts a distinct and systematic investment product. Managed Account Program Segments Mutual Fund Advisory: Discretionary and nondiscretionary programs designed to systematically allocate investors’ assets across mutual funds or ETFs. Services include client profiling, account monitoring, and portfolio rebalancing. An asset-based fee of 1.25%, for example, is charged instead of commission. There are three types of mutual fund advisory programs, differentiated by an advisor’s or client’s ability to influence final portfolio construction: packaged, hybrid, and open. (See section on Packaging for more information.) ETF Advisory: Discretionary programs designed to systematically allocate investors’ assets across various ETFs. Services include client profiling, account monitoring, and portfolio rebalancing. An asset-based fee is charged instead of commission. Typically, ETF Advisory platforms are centrally managed by the home office and advisors have limited ability to modify underlying asset allocations or product use. Rep as Advisor: Fee-based nondiscretionary advisory accounts in which the client retains discretion over the account and is ultimately responsible for selecting asset allocation and managers. Advisors are responsible for making recommendations to the client and advice is considered an essential element of this type of program. Advisors and firms are usually registered with both the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC). These programs typically use individual securities, mutual funds, and ETFs. Rep as Portfolio Manager: Fee-based discretionary advisory programs in which financial advisors act as money managers for their clients by taking full responsibility for selecting portfolios of securities or increasingly pooled investments. The advisor has discretion over these fee-based accounts (either an asset-based fee or alternative fee structure). Advisors must go through training or meet criteria to qualify for participation in the program. There is often both a senior- and junior-level version of the program, differentiated by how much flexibility is given to the advisor in building portfolios. Advisors who oversee these accounts (and their firms) must be registered with both FINRA and the SEC. Separate Account: Programs in which asset managers administer portfolios of individual securities for investors in discretionary separate accounts. Account minimums are typically $100,000 to $250,000, and may be higher. A bundled asset-based fee (often 1.75% to 2.00% before breakpoints and discounts from negotiation) covers money management, trading, and custody. There are three classifications of separate account programs; single-contract programs, dual-contract programs, and proprietary separate accounts. Single-Contract Programs: Single-contract arrangements in which a sanctioned roster of asset managers is offered on the platform and in which sponsors determine minimums and management fees. Dual-Contract Programs: In dual-contract programs, there are a virtually unlimited number of managers available on the platform, and asset managers maintain an additional contract directly with the investor. Proprietary Programs: Proprietary programs are those “closed architecture” offerings where an asset manager affiliated with the sponsor provides asset management for the client. Unified Managed Account: Discretionary and nondiscretionary fee-based programs for which multiple investment vehicles are used to build client portfolios in a single environment. A UMA may consist of multiple managed account programs feeding into a single UMA process. Overlay management is a necessary feature of UMA programs. UMA platforms suggest the capability for program sponsors to take a very holistic look at an investor’s holdings, and service clients with a range of solutions to combine a broad asset allocation plan along with elements of an asset allocation (taxable vs. nontaxable account) strategy. Fee-Based Brokerage: Nondiscretionary, nonadvisory programs in which advice is only incidental to brokerage services. These accounts offer clients a flat, asset-based fee for all trading activity instead of a commission for individual trades. These programs are not typically targeted to day traders, and are increasingly incorporating financial planning and advisory elements. Here, the advisor does not have discretion, or it is on a temporary or limited basis. Clients are charged a fee in lieu of commissions, but there cannot be a separate fee charged for advice. Advisors who offer these accounts (and their firms) need to register only with the NASD and have only a suitability responsibility to the client. Prior to opening this type of account, it must be disclosed to potential clients that their interests and the advisor’s may not be the same. In late March 2007, the D.C. Federal Court of Appeals overturned Rule 202(a)(11)-1, also known as the “Merrill Rule.” As of October 1, 2007, these programs may no longer charge an asset-based fee. Therefore, Cerulli no longer reports assets for fee-based brokerage programs. Discretion: For the purposes of analysis, separate account programs are no longer broken out between discretionary and nondiscretionary. Cerulli analysts believe this will allow for a more concise view of discretionary and nondiscretionary trends among other programs. With the elimination of fee-based brokerage in 3Q 2007, a significant portion of assets were transferred into rep-as-advisor programs, because of the advisory nature of the program. The former fee-based brokerage assets are now included in the discretionary breakdown from 4Q 2007 to present. Discretionary: The home office or advisor has the ability to make changes, adjustments to asset allocations and investment managers without getting the express authorization of the clients. Nondiscretionary: Arrangements where advisors and firms make recommendations regarding manager selection and asset allocation; however all control over the portfolio is retained by the client. Client must authorize all changes made to the portfolio. Packaging: Mutual fund/ETF advisory and unified managed account programs comprise various packaging types. Due to the flexibility the advisor has to build client portfolios, fee-based brokerage, rep as advisor, and rep as portfolio manager are classified as open programs. Packaged: These offerings remit investment decision-making responsibilities to central research committees at the broker/dealer home office. Advisors and clients do not have the flexibility to adjust asset allocations or change managers. Hybrid: Offering more choice and flexibility than packaged programs, hybrid offerings allow advisors to populate centrally provided allocation models with funds/managers drawn typically from a select list. Open: As the name suggests, these programs offer advisors a great degree of flexibility in building fee-based portfolios for clients. Model Portfolios/Model Separate Accounts Asset managers are hired as research providers and periodically submit portfolio holdings information to a program sponsor or overlay manager for individual investors. This type of separate account is most often used within a unified managed account (UMA) program. Multiaffiliate Cerulli defines multiaffiliate (a.k.a. multiboutique) asset managers as firms that assemble products managed solely or largely by affiliated asset managers, delegating the majority of security selection and analysis to self-governing. In contrast, we define managers of managers as those who work largely or solely with unaffiliated subadvisors. (For more information on affiliated and unaffiliated managers, see “subadvisory.”) Outsourced Chief Investment Officer (OCIO) The definition of OCIO and breadth of services provided under these types of relationships is wide-ranging. At a high level, discretionary OCIO means delegating some or all decision-making responsibilities relating to the advisement of an institution’s investment portfolio to a third party for a portfolio-based fee. The types of firms offering outsourcing are diverse, and include global asset managers with outsourcing divisions, managers of managers, former CIOs who offer dedicated OCIO services, and investment consultants that typically also provide traditional consulting services. OCIO providers advise on a range of services, including, but not limited to, investment planning, asset allocation, manager hiring and firing, asset-liability matching, and portfolio monitoring. Overlay Management The goal of overlay management is to simplify, centralize, and systematize a process that has been occurring throughout the fee-based industry for years. In its most basic form, overlay management facilitates the acceptance of model portfolios and the execution based on that model for client accounts. Originally, the benefit of overlay was to systematically realize the tax-management features of separate accounts (e.g., tax-loss harvesting on an ongoing basis and client restrictions). The overlay process sits between the intellectual capital of the asset manager (i.e., the model portfolio) and the client account, which allows client-specific information (e.g., tax budgets and other investment positions) to optimize how the recommended model portfolio is applied to the client account. Other Government and Business Managed Assets Derived from the Federal Reserve Board’s Financial Accounts of the United States (previously called the Flow of Funds Accounts of the United States), and is the sum of mutual fund and money market assets in private depository, nonfinancial business, state and local government non-retirement, and foreign-owned U.S. domiciled. Other Government DC This number includes supplemental government retirement plans, mainly 401a. Other Managed Assets Institutional assets not captured by the investment vehicles listed, as well as non-hedge fund alternatives. Platform A set of financial services products with a distinct pricing and accounting structure, often bundled as a turnkey recordkeeping and administrative system for customer (and more often intermediary) use. There are two types of platforms: external and internal. Portfolio Construction Portfolio construction is the approach by which investment portfolios are assembled and managed. Cerulli views portfolio construction as more holistic and investor outcome-focused than portfolio management, which we view as less encompassing and principally investment-centric. Examples of approaches to portfolio construction include style-box diversification and core satellite investing. Practice Types Money Manager: A financial advisor who builds portfolios of individual securities or funds for clients and focuses exclusively on asset management. Investment Planner: A financial advisor who emphasizes asset management as their primary service, but may offer modular planning services such as retirement planning or education funding. Planning primarily focuses on investment, retirement, and education planning. Financial Planner: A financial advisor who develops complete financial plans for clients based on an extensive analysis of their assets and liabilities. The advisor provides financial planning services for clients on a personalized basis (e.g., income planning, college planning, estate planning) and uses a broad range of investment products to implement plans and recommendations. Wealth Manager: A financial advisor who specializes in complex wealth management and transfer issues, including stock option planning, executive compensations, complex trust and estate planning, and charitable giving. Primary Provider Channel Descriptions Despite the differences between traditional advisory firms and other intermediary channels, households may not correctly identify the type of channel into which their primary provider falls. As a way to better interpret the respondent data, Cerulli analysts reassign or reclassify each individual respondent into a channel based on their responses to the firm name, whether they are assigned a representative or advisor, wealth levels, and the type of accounts they maintain with their provider. Private bank: The household has at least $5 million in investable assets and uses an advisor or team of advisors specialized in serving high-net-worth households. The advisor could be employed by a private client group (e.g., Goldman Sachs, Legg Mason), a private bank (e.g., U.S. Trust), or a trust company (e.g., Northern Trust). Wirehouses: Client works with an advisor who is employed by national firms with large advisorforces (Merrill Lynch/Bank of America, Wells Fargo Advisors, Morgan Stanley Wealth Management, UBS). Other full-service B/D: Client works with an advisor who is employed by a regional broker/dealer or insurance broker/dealer (e.g., Edward Jones, Stifel Nicholas, RBC, MassMutual, MetLife). Independent: Client works with an assigned representative who is an independent advisor (including IBDs, dually registered advisors, and RIAs). Bank advisor: Client works with an advisor employed by the bank. Bank deposit: Client maintains a deposit account with a banking institution. Direct: Client maintains accounts with a direct provider (e.g., Vanguard, Fidelity, TD Ameritrade, E*TRADE). Retirement plan provider: Client has a qualified retirement account set up through their employer. The retirement plan provider is the firm that provides recordkeeping services for the plan. Primary Provider and Primary Advisor It is important to understand the distinction Cerulli analysts make when discussing the primary provider and primary advisor. Primary providers deliver access to products or services through their platform. Primary advisors offer guidance in making the decision to purchase financial products or services. Additionally, households place their trust in the opinion of their advisor. In many cases, a household’s primary advisor is with also their primary provider. However, some households that have another trusted advisor when making final investment decisions will not have a primary advisor. Furthermore, other households will not maintain a primary advisor relationship because a portion of households do not rely on recommendations when making financial decisions. As all respondents in the survey maintain financial accounts, they are likely to have a primary provider. Primary Provider: Firm that the household uses to manage, trade, and/or custody the largest portion of their assets. The value provided to end-clients is access to products and services. The primary provider may be any type of firm at which the household maintains accounts including banks, direct providers, and advisory firms (e.g., Wells Fargo, Charles Schwab, UBS). All households have a primary provider. Primary Advisor: Individual or firm that the household consults most often when making financial decisions. The value provided to end-clients are consulting on products and services and providing financial guidance and advice. A primary advisor does not necessarily need to offer advice in the legal sense and may be a non-advisory firm (e.g.TD Ameritrade). A individual/firm will qualify as a primary advisor given that the household considers the them their primary source of investment advice. Not all households have a primary advisor. Private Bank Banks whose primary business is NOT retail deposit taking or lending, but have significant capabilities in wealth management, investment management and/or investment banking. Private Client Groups generally have a national presence, but only operating in select markets. Examples include Goldman, Credit Suisse, and Wilmington Trust. Private Defined Contribution: Other Includes non-401(k) assets, money purchase plans, profit sharing plans, Keoghs, and Taft-Hartley DC plans. Productivity Index The Productivity Index (PX) is a measure of advisor productivity as measured by AUM per advisor headcount in relation to the average productivity for the industry as a whole. For example, a PX value of +35.2% indicates that a firm or channel’s advisors are 35.2% more productive than the average for advisors across all channels. Professional Buyer Cerulli defines a professional buyer as any person or group using institutional-quality research to perform manager selection. Professional buyers include subadvisory sponsors, investment consultants, multimanagers, managed account sponsors, and other broker/dealers performing high-quality manager research. Retail Asset Management Cerulli considers retail asset management to consist of investment management firms that pool the assets of individual investors and invest them in vehicles with declared financial strategies and objectives (e.g., mutual funds, exchange-traded funds)—providing investors with more diversification and professional management then they would be able to obtain on their own. Retail Direct Cerulli defines a retail direct sale as any sale of an investment (e.g., mutual fund, ETF, individual security) to a retail client without the help of a traditional financial advisor. Representatives are mainly salary-based, and new business development is largely a function of firm-level marketing and self-directed options. Any advice delivered is corporate and not advisor-based. Examples of retail direct sales or firms: Discount brokerage sales through a branch network or call center Mutual fund sales through a branch network or call center Online trading accounts or mutual fund sales Call center serving small or house accounts at a wirehouse broker/dealer Managed accounts through centralized unit Retail Direct Investor Platforms Firms such as Charles Schwab and Fidelity that offer a wide selection of mutual funds from different fund families (including no-load) to investors via one broker and receive a single report. These firms are increasingly providing advice and guidance services, such as financial planning, managed accounts, and calculators. Retirement Income Products Cerulli considers retirement income products to be those that offer income stability or target a specific return (e.g., target-date funds). These, mostly first-generation, outcome-based solutions are built and marketed around their ability to produce a particular result by a pre-determined date. They are typically a hybrid product, combining insurance and mutual funds and often providing guarantees. There are many obstacles to the development of such products ranging from regulatory hurdles to finding economically feasible and reliable investment approaches, to financially engineering income or principal guarantees, and finding the appropriate price to charge for a guarantee. There are also numerous risks to consider—inflation, longevity, market, behavioral, healthcare costs—when developing retirement income solutions, contributing to the complexity of manufacturing such a product. Revenue Source Commission-Only: The advisor is primarily compensated on commission, which accounts for 90% or greater of their total revenue. Fee-and-Commission Mix: The advisor is compensated with a mix of fees and commissions, with 50% to 89% of revenue from commissions and 10% to 50% fee revenue. Fee-Based: The majority of the advisor’s compensation (50% to 90%) is sourced from fee revenue. Fee-Only: More than 90% of compensation is derived from fee revenue. Subadvisory The term subadvisory is used broadly to describe any portfolio management relationship in which more than one entity assumes responsibility for the various components of investment advisory (i.e., fiduciary, security selection, and trading). Cerulli’s definition of subadvisory focuses on the following products: mutual funds and variable annuities (VAs), ETFs, and retail separate accounts. In short, an asset manager hired to subadvise mutual funds or VAs—for which the hiring firm serves as advisor—is working in a subadvisory capacity. Affiliated: Affiliated subadvisory relationships are those agreements in which there is a direct legal or financial relationship between the subadvisor and sponsor. Because of this ownership, the dynamics of the relationship differ vastly from an unaffiliated relationship. The profitability of such relationships more closely resembles those of an internally managed product than it does an unaffiliated subadvisor-managed product. Unaffiliated: Strictly speaking, Cerulli defines subadvisory relationships as unaffiliated if there is no legal or financial relationship between the two entities. Cerulli believes that if the advisor or sponsor has even a minor financial stake in the subadvisor, the dynamics of the relationship influence decision making. As outlined in Cerulli research, there are a number of relationships that, on paper, represent unaffiliated associations, but upon further review are not. U.S. Retirement Marketplace Cerulli considers the U.S. retirement marketplace to consist of individual retirement accounts (IRAs), retirement income products and services, public defined benefit (DB), private DB, public defined contribution (DC), and private DC. We consider the public DB marketplace to include federal, state and local government DB assets. Our public DC market sizing includes thrift savings plans, Taft-Hartley plans, 403(b) and 457 plans. In private DC, we include 401(k) plans, individual 401(k) plans, money purchase pension plans, profit-sharing plans, and Keoghs. Variable Annuity (VA) This is a contract between an individual and an insurance company, under which the individual makes a lump-sum payment or series of payments. The insurer agrees to make periodic payments beginning immediately or at some future date. The individual can choose to invest the purchase payments in a range of investment options, which are typically mutual funds. The value of the account in a variable annuity will differ, depending on the performance of the investment options you have chosen. They may include features such as tax deferral on earnings, a death benefit, or income options for a definite or indefinite period of time as well as optional living benefits. Variable Investment Trust (VIT) Single-registered entity through which a series of funds can be registered with the SEC and the funds within the trust are advised by multiple advisors. Shares of VIT funds are sold only on life insurance platforms and are offered to separate accounts of participating life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Wholesaler Tenure Total years employed as an external wholesaler at any firm. Rookie: Total career employment as an external wholesaler is 3 years or fewer. Mid-Career: Total career employment as an external wholesaler is between 4 and 10 years. 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