Separately managed accounts (SMA) have been touted as the next big thing, the Holy Grail even, for the financial services industry for a few years now, but myriad inefficiencies still hamper the effective delivery of the best of these products to more than just the wealthy investor—and, even, broker/dealer.

Assets are flowing into SMAs, yet it’s the operational aspect—the lack of a standardized industrywide technology—that is a concern to the SMA industry. “The SMA industry is maturing,” the MMI co-chairs said in its introduction to the Money Management Institutes’ fall conference, held at the Roosevelt Hotel in New York this week. “And it’s time we focus less on expanding assets and more on how we deliver.”

One attendee, who didn’t want his name printed, said not much has changed in the industry since last year’s conference—despite the asset growth. “It’s a lot of the same issues: efficiency and automation and distribution,” he said. Of course, there are new concerns, he said: compliance and regulation.

Many foresee this huge growth in popularity, combined with operational complexity, lack of standardization and relative lack of investor knowledge about these products, makes them an easy target for the SEC.

And the growth has certainly been eye-catching. According to the MMI, SMA assets grew by 39 percent between the first quarters of 2003 and 2004, and, as of the end of the second quarter, total $528.7 billion, up from $442.9 billion at the end of the second quarter in 2003. Looking ahead, MMI forecasts SMA net sales for 2004 to total $59 billion, a 90 percent increase over 2003. For 2005, the MMI projects this number to reach the $80 billion mark.

One panel speaker said it’s only a matter of time before the SEC starts sniffing around SMA sales, examining suitability. “Everyone I speak with in the industry and around it—lawyers, friends—is quite sure the SEC is going to focus on separately managed accounts next,” said Mary Cademartori, VP of the wealth and asset management group at Lehman Brothers, to a crowd of attendees at the Roosevelt.

“That original client profile your client filled out five years ago to join a wrap-fee program? That’s going to need to be updated very regularly to make sure everything still fits,” she said.

She suggested that advisors be proactive on this issue, given the environment of distrust among investors, and conduct quarterly analyses to compare the costs clients would incur had they been in a commission-based vs. fee-based account.

And according to final speaker Ann Mahrdt, a director at the Spectrem Group, a Boston-based research firm, putting the client-first strategy is one that everyone would be wise to live by. “Our research has shown investors are relatively positive about the market, but remain skeptical about advisors,” she said.