With its acquisition of First Asset Advisory Services Inc., Frank Russell Canada Ltd. is seeking to entrench its dominant position in the Canadian managed account programs industry by giving financial advisors a wider range of program options through an increased number of distribution networks.

“There’s a tremendous opportunity for growth in the segment. There’s a tremendous appetite for high quality, objectively constructed managed programs,” says Joe Perrin, president and managing director of Toronto-based Frank Russell Canada. “This acquisition solidifies our leading position as a third-party provider of those programs.”

The deal to purchase FAAS, which was announced in early December and closed in mid-January, sees Russell Canada take 100% ownership of FAAS from AMG Canada Corp. , a Toronto-based holding company for a number of money management firms.

Perrin says that Frank Russell Canada is committed to operating the Toronto-based firm as a separate entity with a distinct product lineup and service offering. He also envisions no significant organizational changes at FAAS.

Frank Russell Canada, which entered the managed accounts market in 1993, provides financial advisors with two families of managed account programs: the Sovereign programs, which includes a multi-manager wrap program and a multi-manager separate accounts program; and the LifePoints portfolios, which features a multi-manager fund-of-funds program. The firm is a subsidiary of U.S.-based Frank Russell Co., a global giant in managed accounts and investment consulting.

Meanwhile, FAAS, a Toronto-based firm founded in 2002, offers a separately managed account program known as Legacy and also offers so-called white-label programs for its distribution partners.

FAAS, which employs about 40 people, brings approximately $800 million in assets under management to the table. It has a representative in Vancouver, serving Western Canada, and one in Montreal, serving Quebec and Atlantic Canada.

FAAS provides account management services to about 350 investment advisors and their clients, although it has access to potentially thousands more through its distribution deals with investment dealers.

Its average account size is $500,000 with a minimum investment requirement of $150,000.

According to Perrin, the acquisition of FAAS gives Frank Russell Canada two main advantages. The first is a wider selection of program offerings that fit well together, with Sovereign programs being more highly bundled, and FAAS’s programs being more “open architecture,” or flexible.

The second advantage is that the two companies’ networks of distribution deals complement each other nicely.

Although Russell Canada has distribution deals with large investment dealers such as RBC Dominion Securities Inc., TD Waterhouse Canada Inc. , and Scotia McLeod Inc. , FAAS has arrangements with more modest players such as Wellington West Capital Inc. and Laurentian Bank Securities Inc.

Perrin says it’s too early to tell how Russell Canada and FAAS can help each other specifically. “We’ll continue to satisfy all of FAAS’s client commitments while looking for ways to further support FAAS,” he says.

Perrin also says that looking for takeover targets is not usually part of Frank Russell Canada’s strategy. “We have grown dramatically and, almost exclusively, organically,” he says. “It’s not our intention to grow by acquisition. This opportunity presented itself to us.”

AMG Canada was previously known as First Asset Management Inc. before being bought last spring by U.S.-based asset management firm Affiliated Managers Group Inc.

“Considering the rapid growth in the managed accounts space, it was considered better for our business to be aligned with a partner interested in growing and in the continued specialization of managed accounts for the long term,” says Lisa Langley, president and CEO of FAAS. “[Frank] Russell wants to own the space and be the premier provider of managed account solutions.”

Langley says she considers FAAS’s core strength to be the distribution and development of fee-based, specialized investment management services. She also says that she sees no big changes coming at the firm.

As does Perrin, Langley believes, over time, that FAAS and Frank Russell Canada will find ways to leverage each other’s advantages. “We are just beginning to examine synergies [with Frank Russell Canada],” she says. “We believe this move potentially adds to our capabilities in managed accounts. [Frank] Russell has great resources and a talented team.”

One area in which Langley thinks there will be synergies is in technology. “Technology is critical to managed account solutions, to a provider’s ability to deliver customization and to achieve scale,” she says. “We have strong technology and so does [Frank] Russell. We think together this will be a key strength [of the deal].”

@page_break@For Langley, the most important aspect of the FAAS acquisition is that “it’s a signal to the industry that managed accounts are a sophisticated solution for high net- worth clients.” She says growth in the segment has been running faster in Canada than in the U.S., a market in which the business is more mature. Langley pegs the annual growth of managed accounts in Canada as somewhere between 22%-27% a year.

Managed accounts come in three broad categories: mutual fund wraps, pooled funds and separately managed accounts. They are popular in retirement portfolios and they feature disciplined asset-allocation, access to top money managers, and monitoring and research. In addition, they allow financial advisors to assign the day-to-day management of investments to a third-party source, freeing them to concentrate on managing the client relationship.

“Clearly, the whole managed money space has been one of the drivers of growth in retail business over past few years, despite choppy markets over that time,” says Dan Richards, president of Strategic Imperatives Ltd. , a Toronto-based consulting firm.

“The promise of managed accounts is that they will provide more consistent, predictable returns,” he adds. “As they get a little older, investors are saying, ‘I’m not looking for higher returns, I’m looking for consistency. And they’re also saying, ‘I don’t want to be involved at the macro level.’”

At the same time, clients have gravitated to managed accounts, Richards says, advisors have been drawn to them by the opportunity to outsource the investment process.

“A lot of advisors are saying to themselves, ‘I’ve learned that picking stocks is not the best use of my time. I’d rather be communicating with my clients’,” he says.

However, there are some potential risks on the horizon. First, there is competition in the market. AGF Funds Inc., Dynamic Mutual Funds Inc., Mackenzie Financial Corp. and Franklin Templeton Investments Corp. are among companies with managed accounts programs, and the number will probably increase.

And there’s always the possibility that managed accounts will fall out of favour with investors.

“Managed accounts don’t come cheap,” says Richards, referring to the fees for managed accounts, which can run between 2% to 3% “That’s the downside. IE