Cerulli: Redemption Rates for SMAs Are Higher than Expected

Core Insights - SMAs have seen significant growth, increasing by over 54% to $3.86 trillion in assets as of Q1 2025, according to Cerulli Associates [1] - Despite the growth, average redemption rates for SMAs are in the double digits, which is higher than asset managers anticipated [1] Group 1: Growth of SMAs - Asset managers have rapidly launched managed accounts, with Edward Jones doubling its SMA offerings this summer and Percent launching its first SMA focused on private credit [2] - Research indicates that advisors prefer SMAs over model portfolios due to lower fees and greater customization, with assets in SMAs growing by nearly 70% to $500 billion from early 2023 to mid-2024 [2] Group 2: Redemption Rates - A Cerulli survey found that the average redemption rate for equity SMAs is 21.1% and 15.9% for fixed-income SMAs, which are higher than expected despite being comparable to mutual funds [3] - Asset managers had anticipated investors would remain in SMAs for 10 to 20 years, but the actual holding period is closer to five years [4] Group 3: Market Volatility Impact - Persistent market volatility over the past six years may contribute to higher redemption rates, as clients can react quickly to market downturns [5] - Asset managers viewed SMAs as long-term investments due to the complexity of liquidating multiple individual stocks, but short-term market disruptions and client needs have led to shorter holding periods than expected [6]