Financial advisors at broker/dealers are increasingly taking the reins on their clients’ fee-based accounts, according to a report out from Cerulli Associates today. That should continue to grow in the next few years, Cerulli says, estimating that so-called rep-as-portfolio-manager programs, in which the advisor makes individual investment decisions instead of leaving it to the home office or running each decision by the client, will more than double to $823 billion in 2015 from $406 billion today.

Assets in all managed accounts, a fancy name for broker/dealer accounts that charge an asset-based fee, are expected to grow to $4.1 trillion by 2015, from $2.2 trillion at the end of 2011, but growth in rep-as-portfolio-manager assets will outpace growth in other kinds of managed accounts, Cerulli says. Advisor-distributed assets in both commission and fee broker/dealer accounts totaled $11.2 trillion at the end of 2010, Cerulli’s latest figure.

Is taking full investment control, also known as “discretion,” a good strategy? Relationship management has become such a big part of the job these days, while managing investments is increasingly complex, considering the proliferation of products and the volatility in the markets. That means there’s not a whole lot of time to do both well. As financial advisor and columnist for this magazine Josh Brown recently put it during a Registered Rep. Tweetup, “My favorite investing myth is that people who are good at selling investments are also good at managing them.” Todd Taylor, a partner at Heidrick & Struggles, a financial services executive search firm, echoed that thought in a recent interview. “FAs should be out there finding clients, building relationships, understanding client needs. For them to act as portfolio manager is kind of counter-productive.”

It may seem counter-intuitive, but Cerulli analysts say taking discretion over accounts can allow some advisors to spend more time bringing in new clients and assets. “Instead of having to reach out to every client every time you want to make a change, it allows you to spend more time on prospecting, bringing in new assets,” said Cerulli analyst and author of the report Patrick Newcomb. “In non-discretionary programs [where you have to get authorization from the client for each investment decision], it’s harder to really get beyond a certain level of assets.”

The key to making it work is to be part of a team, a mode of operation that has been growing across the industry. “In rep as PM, you might have senior investment manager on the team picking individual stocks themselves,” says Newcomb.

There are a few other reasons these accounts are growing in popularity, some of which we cited in a previous article on the subject. Advisors have gotten more desperate to prove their value to clients after so many of those clients lost buckets of their retirement money in the downturn: They want investors to know they are the ones calling the shots and (hopefully) making their money grow.

“The advisors value what they hear from the home office research, but they want the final stamp of authority to be theirs,” said Scott Smith, an analyst with Cerulli. “This fits in with other trends. If you pitch a UBS program to your client and then you want to leave a year later, it's going to be a lot more complicated. If you tell them, ‘We get great research, but we use our own proprietary process,’ you're likely to have a much more loyal client.”

Many of the rep-as-portfolio-manager programs also now accommodate ETFs and mutual funds, instead of just individual securities, which make them appealing to a much broader group of advisors.

Of course, giving advisors so much control also requires greater oversight. Typically, only advisors who have certain levels of assets and years of experience and get specific training are allowed to take full discretion. Some firms have also built out specific capabilities to track what their advisors are doing in such programs for compliance reasons. Advisors using rep-as-portfolio-manager programs still have to follow certain firm allocation models and/or select only stocks, bonds, mutual funds and ETFs that are on the firm’s buy list, said Newcomb.