MORE FIZZLE THAN SIZZLE IN SCHWAB’S WRAP EFFORT: FIVE MONTHS IN, JUST A FEW ADVISERS HAVE SIGNED UP FOR ITS SEPARATE ACCOUNTS

Charles Schwab Corp.’s widely publicized separate account program appears off to a sluggish start, drawing just $20 million in its first five months through 24 of 5,400 financial advisers who trade via its supermarket, according to a source.

While a company spokesman calls those figures “outdated,” a survey of participating managers hints that the numbers aren’t far off.

Called Managed Asset Connection, the Schwab venture refers financial advisers to big-name institutional money managers. Of the 34 money managers taking part, 23 returned calls last week. Just six of them say they’ve established adviser-referred clients since the program’s launch. Collectively the half dozen firms have garnered $17 million through accounts ranging from $500,000 to $1 million.

“It’s something we all said we wanted, and it’s certainly a good tool to have,” says Marilyn Capelli Dimitroff, a Schwab advisory board member who manages $60 million from her Bloomfield Hills, Mich., office. “I haven’t really felt compelled to take action, though,” she acknowledges.

Adds board member Greg Conway of Conway Jarvis & Associates in Seattle, “There was generally a positive reception given the program from members; I don’t know of any who have used it, though.”

Managed Asset Connection is still “in kickoff mode,” a Schwab spokeswoman says. “It’s only been out there for a couple of months.”

The San Francisco-based brokerage is still holding regional seminars to raise awareness and inform advisers about the program, details of which first surfaced on the eve of Schwab’s last annual adviser conference (InvestmentNews, Nov. 2).

The program offers Main Street clients access to portfolios of individually managed securities overseen by institutions that typically wouldn’t talk to anyone with less than $10 million. It requires a minimum of $250,000 to invest and costs clients 1.8% of assets under management. Of that, 0.65% goes to the money manager, 0.30% to Schwab for clearing and 0.85% to the adviser.

But newness isn’t Managed Account’s only problem. Unlike the wrap account programs of the largest full-service brokerages it competes with, Schwab isn’t assuming any of the liabilities associated with due diligence. It has left them to its financial advisers, and some of them aren’t too keen on the idea.

“You’re talking about geometric levels of complexity” with with separate accounts, says Edd Hyde, a Schwab advisory board member in Radnor, Pa. “It’s enough to make you want to pull out your hair.”

“So many clients have multiple accounts,” adds Ms. Capelli Dimitroff. “Complicating things further with separate accounts would create an awful lot of confusion.”

That advisers are resisting the program comes as somewhat of a surprise. Already, similar programs have sprung up around the country, including a separate account program launched last month by Waterhouse Institutional.

“It gives me a profound sense of d‚ja vu,” says Stephen Gresham, an industry analyst in Madison, Conn., suggesting that advisers are behaving just as brokers did when face-to-face brokerages introduced wrap accounts in the 1980s — reluctantly.

extras seen as crucial

“They already have their clients conditioned to certain ways of doing things,” he explains.

The major difference between Schwab’s program and more comprehensive ones like those offered by wirehouses or separate account specialists such as Lockwood Financial Group in Malvern, Pa., is that the others provide everything from quarterly reports to ensuring a client doesn’t get stuck with a bad manager — services Mr. Gresham calls critical to success.

A quick look at the numbers bears him out. In its first six months of life three years ago, Lockwood pulled in $200 million. Schwab’s Managed Asset Connection has drawn roughly one-tenth that amount in about five months.

The biggest snag still for Schwab is that most of its advisers with wealthy clients already have existing accounts with other money managers or organizations, like Lockwood, merely because they’ve been around longer.

“There aren’t a lot of $250,000 accounts flying around loose in the world,” observes Katy Pelli, an investment manager at Sirach Capital Management in Santa Barbara, Calif., one of Schwab’s 34 separate-account managers.

Indeed, most money managers are counting on new blood to goose Schwab’s program. “As advisers obtain new accounts a program like this will definitely pick up speed,” says Ms. Pelli.

Of the 23 firms contacted, the six that report establishing adviser-referred clients since the program’s launch are Loomis Sayles & Co., Stein Roe & Farnham and Segall Bryant & Hamill, all of Chicago; Van Deventer & Hoch in Glendale, Calif.; Navellier & Associates in Reno, Nev., and State Street Research and Management in Boston.

Most of the 17 others report receiving inquiries from advisers and many say they expect to secure accounts in the next few months.

Adds the Schwab spokeswoman: “What we’re hearing from advisers is, ‘Wow, this is really interesting; this is something I want to add.’ ”

Paul Booth of Lodi, Calif., is happily taking advantage of Schwab’s offering. An adviser with separate account experience, Mr. Booth recently moved all his clients’ accounts from a poorly performing program to Navellier & Associates. He predicts that Managed Account Connection will eventually attract more advisers for the same reason he was drawn to it.

“It’s incredibly easy to reconcile the different statements” from Schwab and Navellier, Mr. Booth says. “It’s more cost effective,” presumably in contrast to wrap programs that could charge up to 3%. “It’s just far better for clients than what’s been otherwise available.”

That’s good news. But most other Schwab advisers apparently lack such previous experience with separate accounts. They’ll likely need more evidence that Managed Asset Connection will enhance portfolio returns.