Merrill Streamlines Their Platform To Deliver UMH for Clients

Last week, I was contacted by a reporter from FundFire looking for my comments on a new feature that Merrill Lynch has implemented as part of their $100 million platform consolidation project.  The project, called Merrill One, is replacing five other legacy programs, some of which have been running for over 25 years.  She was interested in my opinion as to whether the rest of the industry is also moving in this direction and what progress they have made so far. FundFire logo

The new platform is designed to deliver a streamlined experience to Merrill’s 1.4 million clients in managed account programs.  It includes a single set of documents, no matter how many different types of accounts or products the client has as well as a unified fee structure.  If all of this is delivered, it will keep Merrill on the cutting edge of investment advisory technology.

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Envestnet’s ENV2 Platform Delivers New UMA Features

Sliced bread.  The electric light bulb.  Indoor plumbing.  Unified Manged Accounts (UMA’s) were supposed to be better than these revolutionary inventions and a whole lot more.  They still have not lived up to their hype, but UMA’s have become a standard offering for all managed account platforms.

In this summary of a session from Envestnet’s 2014 Advisor Summit, a panel of experts provides updated information about the Envestnet UMA program including how the program has changed over time, coordinating and updating UMA models, building performance composites and other exciting, new features.

Moderator: Jeff Nicholas, Senior VP, Product Management, Envestnet
Panel: Daren Evans, Sr. Research Analyst, Hightower Associates
Joel Floum, VP, Investment Advisory Programs, US Bancorp Investments
Jim McCormick, Principal, Pryor McCormick Investments

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5 Hot Tips For Selling to RIAs

This is a summary of a panel from the Money Management Institute’s 2014 Annual Convention.   The session was targeted at anyone who has investment advisory firms as customers such as service providers, broker-dealers or asset managers.

Moderator: Kian Rafia, VP, Product Development, Cetera Financial Group
Panel: Mark Pennington, Partner, RIA Services, Lord Abbett
Michael Partnow, Director and Financial Solutions Consultant, Pershing, LLC, a BNY Mellon Company
Michael Bryan, Senior VP, Advisory Services, Triad Advisors

The panel was composed of experts representing broker-dealer, product manufacturer, and investment supplier firms who provided these useful tips for selling into the Registered Investment Advisory (RIA) market.  As a consultant who regularly helps clients develop strategies for this space, I was impressed with the depth of knowledge and usefulness of the advice offered in this session.

1. Focus on Their Areas of ConcernDart Board 3

There are currently two drivers of change in the RIA market; organic growth and margin compression, Partnow began.  Growing their business organically is the primary driver for elite RIA firms.  You should be thinking about how to partner with them to help them achieve their goals.  Margin compression is due to the combination of a continued low interest rate environment, as well as margin and mutual fund fee waivers, he stated.

Pennington agreed that there is a squeeze on margins and quoted research from Envestnet that said 77% of advisors are moving to the RIA channel to increase their compensation.  Distribution companies, asset managers, sponsors, providers, platforms and broker-dealers need to react to that.  Clients want independent thought, especially the true entrepreneurs who want to be on their own, he said.

2. Let Your Clients Define ThemselvesFun House Mirror2

If you want to penetrate the RIA market, the first thing you need to do is to define it, Bryan proposed.  He recommended thinking “fee first” when looking at the RIA marketplace to highlight the point that if you want to service fee-based advisors, you need to know where they are coming from, he explained.

Bryan explained that the following advisory business models can be referred to as ‘hybrid’:

  • Indy RIA – An Investment Advisor Representative (IAR) operating under an independent RIA using a discount broker-dealer for their custodial relationship. there are a lot of these out there, but they are hard to capture.
  • Dual registrant – Has both fee and commission licenses, segmentation can get funky, inside this space there are advisors operating under a broker-dealer or insurance company’s RIA (corporate RIA), as well as IAR’s operating under an independent RIA (independent from the broker-dealer). These RIA’s may or may not custody assets with the broker-dealer.  This segment represents the largest revenue opportunity for broker-dealers today.

Hybrid is more of a marketing term than a compliance term, Partnow insisted.  It really should be defined as whatever your client wants it to be. Advisors are attracted to the hybrid model since it offers more flexibility to offer products to meet the needs of different end investors, he stated.

Some advisory firms do not want to be referred to as broker-dealers.  They prefer to be called an “RIA with a broker-dealer” or even simply a “wealth management organization,” Partnow reported.

3. Partner With CustodiansTeamwork and team spirit

There has been a shift in the independent contracting segment, according to Partnow, with ACAT’s leaving independent broker-dealers and going to the primary third party custodians.  This is forcing the broker-dealers to choose between fighting the custodians or partnering with them, he said.

Elite advisory firms are transforming their organizations into wealth management firms to better support independent RIA’s through and keep the assets from going to the custodians, Partnow reported.   Firms that can not change are forming affiliations with custodians to attract top-producing IARs who are looking for services such as practice management and individual business consulting, he noted.

Advisors are looking for economies of scale but don’t want to disrupt their business, so they look for a partner with similar infrastructure, Bryan pointed out.

Partnow explained that there are two opportunities for broker-dealers to position themselves to gain additional business from IARs:

  • Through their clearing entity
  • Through third party affiliations (i.e. Schwab, TD, Fidelity)

4. Convert Regulatory Issues into Sales OpportunitiesOpportunity Door

Since 2008, the industry has been experiencing what Bryan termed a “tsunami of regulations.”  Although, the fall of the Merrill Rule was not necessarily a bad thing for those in the advisory space, Bryan stated.  This is because it highlighted the differences between commission-only and fee-based advisors.  More recently, Dodd-Frank and the Department of Labor’s (DoL) recent rulings that impact commissions can be seen as a drive to improve transparency, he stated.

Everyone should be brainstorming ways your firms can help advisors to navigate these waters, Bryan insisted.  A big shift occurred when the SEC required firms with <$100mm in AUM to register with state regulators.  At some point, many of these advisory firms will become fed up with trying to comply with the myriad state regulations, and you should be there to help them, he advised.

However, fee-based advisors have been managing this for a long time, Bryan continued.  Use these new regulations as an opportunity to help support advisors.  The compliance environment has become more complex as new rules have come from ERISA, DOL, and even FINRA.  Ask yourself how you can help advisors to continue serving retirement plan assets and stay compliant?  You will receive an enthusiastic welcome if you bring solutions to your clients that make it easier to navigate the regulations, he noted.

The top focus of the SEC this year is dual-registered advisors, Pennington warned.  Specifically, the regulator will be looking to ensure that advisors are putting clients into the proper product for them, whether it is fee-based or commission-based.

Rep as PM (RPM) programs are undergoing additional regulatory scrutiny, Partnow insisted.  Many firms have gotten themselves upside down in the independent contracting space and are seeing almost 2/3 of their new advisory business being directed towards RPM.  When you create new products (i.e. alternative funds or new mutual fund share classes) think about how your broker-dealer clients will be able to leverage them.  Reducing their platform fees is important to them, so try to provide mutual funds without transaction fees, he recommended. 

Dually-registered firms increased their AUM by over 21 percent from 2011 to 2012 and now manage nearly $1.1 trillion in assets, according to Cerulli Associates.

5. Keep an Eye on Industry Trendsmarket trends2

Is there a trend of advisors shifting away from independence and back towards working for broker-dealers?

According to Bryan, his firm has supported the independent RIA model for a long time, but in just the past 18 months, the number of IARs under Triad’s corporate RIA has increased 100%.  There are now 20% under the corporate structure and 80% under the independent structure.  This is a substantial shift.  Some broker-dealers are moving away from the independent model entirely and forcing out any advisors that want that model, he added.

Of the roughly 15,000 RIA firms in the US, Pennington explained, 11,000 of them (73%) have less than $100 mm in AUM.  In 2011, there were 160 firms with over $1 billion in AUM.  Now there are over 600, mainly due to the intense M&A activity that has taken place over the past few years.  It is almost impossible to have a six-fold increase in these firms based solely on organic growth, he stressed.

Advisory firms with over $1 billion in assets control 54% of the market, up from 42% in 2008, according to Cerulli..

The advisory business has become very concentrated.  90% of assets in the RIA space are controlled by just 10% of firms.

BONUS. Don’t Create a Separate Salesforce for RIAs

Cerulli is forecasting growth in RIA channel headcount of 140% between now and 2017, Pennington noted, with dual-registered expected to grow 160%.  It has gone from a trickle to a flood of new hiring, he observed.

Lord Abbett has a good reputation in the RIA space for marketing and client segmentation and yet they do not have a separate sales force just for RIA’s, according to Pennington.  Their independent broker-dealer sales people cover the RIA channel.  He recommends identifying salespeople who can be chameleons.  Give them the right training and they can sell anything, he insisted.

Pennington used to run the SMA business at Lord Abbett and resisted pressure to create a separate SMA sales force.  It is an advantage to be a privately-held partnership since it allows them to be more flexible with roles.  The quality of your investment products will ultimately drive your long-term success and it must be surrounded with a service model that caters to the needs of your clients, he explained.

Channel AUM 2012 ($Bil) Increase from 2011 to 2012
Wirehouses 5.4 12.5%
RIA’s 2.3 14% (very strong EQ year)
IBD’s 2.2 11%
Regional BD’s 1.9 2%
Bank BD 629mm 4.6%
Insurance BD 434mm 2.4%
Total 12.8B 10%

 

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Which CRM is Right for You? Envestnet|Tamarac’s Advisor CRM

Some of the most popular posts on this blog come from two series of articles: Which Portfolio Rebalancing Software is Right for You? and Which Financial Planning Software is Right For You?

Adding to this trend, I’m launching a new series called, Which CRM Software is Right for You?  In it, I will be reviewing Customer Relationship Management applications designed for financial advisors, including both stand alone packages and those that are integrated with a wealth management platform.

Since I was at the Envestnet 2014 Advisor Summit last week, I thought it would be appropriate to start this series off with a review of their aptly-named Advisor CRM® 2014 application, which is offered as part of the Tamarac Advisor Xi platform.  This new version is targeted at RIA’s and was recently released as a completely redesigned web-based application.

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3 Tips for Helping Clients Deal With a Crisis

After a financial crisis, how do you think about what comes next?  How will your clients react and how can you help them?  What are they feeling and why are they feeling that way?  The Hartford Funds has partnered with the MIT Age Lab to study how the changing demographics of aging will impact consumer decision making, preferences, communication.

This article is a summary of a session from the Money Management Institute’s Fall Solutions Conference that was held in October 2013 in New York City.  The presenter was John Diehl, Senior VP, Hartford Funds who spoke about his work at what Hartford calls the Masters of Advice Institute and specifically about a presentation he developed called Fear, Finance and the High Anxiety Client.

Diehl started by explaining that during a financial crisis, most clients will experience some combination of stress, fear, and\or anxiety.  Studies have shown that people under stress experience tunnel vision, auditory exclusion, and a reduced capacity to learn.  All of which make it harder for an advisor to communicate with them. Continue reading

Financial Planning in 10 Minutes or Less with goalgamiPro

Origami is the Japanese traditional art of paper folding and is made up of two smaller words; “ori”, meaning to fold and “gami” meaning paper.

goalgamiPro (which starts with a lowercase ‘g’) is not an ancient art form, but the name of a software product developed by Advisor Software Inc. (ASI).  It is designed to be a “lite” financial planning tool that enables advisors to create financial plans in as little as ten minutes.

I recently spoke with Neal Ringquist, President and COO of Advisor Software Inc. about their software and how ASI is planning on revolutionizing the financial planning process.

While origami began sometime in the 6th century C.E., goalgamiPro has a more recent origin.  It was launched 12 months ago and was designed to fill the gap between calculators and widgets on the low end and comprehensive planning software on the high end.  goalgamiPro is a quick planning solution and already has around 500 users. It produces modular, single page reports that have questions as the title, such as “What is my plan” and “How do I pay for retirement?” And take just ten minutes to produce. Continue reading

Adventures in Rebalancing: The Last Frontier

FA Magazine recently published a good primer on automated solutions for portfolio rebalancing. The article is titled The Last Frontier and was written by James Picerno and it is definitely well-researched. He managed to obtain quotes from industry experts such as Bill Winterberg, Joel Bruckenstein and Michael Kitces, all of whom I have tremendous respect for. The article is certainly a useful resource for any RIA or advisor interested in the basics of rebalancing.

Besides discussing the basic functions of rebalancing, Picerno also gets into some of the more esoteric features that make rebalancing software so incredibly useful. Here is a quote from a lesser-known industry expert:

Technology circa 2013 offers a better way, for reasons that go beyond easing your workload. “You’re also going to provide better service for clients,” says Craig Iskowitz of the Ezra Group, a financial technology consultancy. Rebalancing software, he explains, makes it easier to build and manage custom investment strategies, such as a socially responsible portfolio that closely matches an investor’s preferences.

Portfolio customization has been available for more than a decade on systems such as Fiserv’s Unified Wealth Platform, which is still based on what was formerly known as Checkfree\APL. While it’s true that most of the top vendors in the space offer this feature now, you didn’t have to wait until “technology circa 2013” in order to take advantage of it. Continue reading