High Growth Solutions for Models Only Programs

This post is a summary of a panel from the MMI Tech & Ops Conference.

Moderator:
Hereen Pathak, CTO, Vestmark

Panelists:
Tom Huddleston – SVP, Natixis Asset Management.
Elba Cruz – Director of Overlay Portfolio Management, Morgan Stanley Smith Barney
Andrew Rose – VP, Redi2 Technologies
Josh Mayer – EVP, Managing Director Operations, EnvestNet.

13F/13G Reporting – under what conditions do you do the reporting versus requiring the model provider to do it?

As an overlay manager, Natixis is both a model receiver and model provider, Huddleston explained.  They approach the reporting requirement by asking “who’s got discretion” for trading the models.  In most cases, the model receiver has discretion, so they are responsible for 13F/13G reporting.  Another reason is because it would be difficult for a model provider to have insight into how the model is being applied, he said.

Cruz disagreed and said that it is the model provider who has discretion.  From a regulatory standpoint, it is up to the model provider to deliver the necessary information required for 13F/13G reporting.  It is important for the model receiver to provide the information back to the model provider including details about how the model is being implemented, he said.

Mayer countered that it depends on the manager’s relationship with the program.  The manager may have discretion based on prior agreements. In EnvestNet’s
program, model managers assign discretion to the firm. In a UMA world, there can be dual-discretion between the overlay manager and SMA sleeve
manager, since both may have some trading authority, he explained.

Frequently Asked Questions About Form 13F, Form SH, Schedule 13D & Schedule 13G

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RIAs Take Advantage of Discretion to Launch UMAs and Improve Efficiency

This is a summary from a session of the MMI Tech and Ops Conference with a panel made up of Registered Investment Advisors (RIAs).  The discussions centered around the use of Unified Managed Accounts (UMAs) and the advantages of discretionary versus non-discretionary accounts.

Moderator:

Roger Paradiso, Director/CIO, Managing Director, Morgan Stanley Smith Barney

Panelists:

Dan Sherman, SVP, Family Wealth Director, Morgan Stanley Smith Barney.  Dec 1990, Sherman Group.  They manage over $1 bil in house and advise $2 bil out of house with a seven person team, using a top down method and proprietary financial planning process.

Mark Rogozinski, President, Rockit Solutions, LLC.  They are a back office solution for single and multi-family offices and trust companies.  They are a wholly-owned subsidiary of Rockefeller Financial with around $30 bil in AUM.  Mark has been at RockIt for two years.

Tim Flynn, RIA, President, Tim Flynn LLC.  Currently transitioning from traditional, corporate RIA to a hybrid RIA.  Boutique shop in NYC.  5 people, 3 registered reps and 2 support.  Currently managing $425 mm AUM internally, and $350 mm away, consulting primarily to retirement plans.

Are you using UMA programs and if so, what features do you think are the most useful to your clients?

Rogozinski theorized that all the advantages of UMAs evaporated during the financial crisis, specifically around overlay management and tax efficiency.  Their clients started getting out of UMAs and back into SMAs since there were no longer any embedded gains, which would prohibit them from moving.  Another factor was new technology that Rockit introduced that allows their clients to become their own overlay managers.

In the RIA space, Rockit implemented a new UMA strategy, which is very cost effective and tax efficient, Rogozinski reported.  The new system allows them to service smaller clients at lower thresholds and offer more separate account managers on their platform.  Many firms sold all their UMA assets and switched to mutual funds, since there were no embedded gains after the market crisis.  It’s a very cyclical business and five years from now will probably return to UMAs when the market goes back up and creates new embedded gains, he projected.

Flynn built his practice with open architecture and non-discretionary accounts.   Then he realized that it was expensive and didn’t scale very well.  About 18 months ago, he began to shift his focus to UMAs through two platforms available from his broker-dealer.  UMAs allow him to deploy assets differently, he can run more assets with a smaller staff footprint.  These products have enabled him to become more competitive.

Dan Sherman has seven people on his team at Morgan Stanley, four of whom are partners.   They use a top down financial planning perspective that eventually ends up with an asset management end product.  According to Sherman, they have shifted the bulk of their capital appreciation assets onto their UMA platform.  These assets include more than just equity, but not traditional fixed income.  On the fixed income side, they run a traditional transaction-based business, he said.

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