Why Haven’t Advisors Embraced Unified Managed Accounts?

This is an overview of a session from the MMI 2012 Tech & Ops Conference held in Jersey City, NJ.

Moderator:

  • Jay Link, Managing Director, Managed Solutions Group, Merrill Lynch

Panelists:

  • Andrew Clipper, Managing Director, Head of Wealth Management Services, NA, Citi
  • John Capelli, Managing Director, COO, Managed Account Advisors, Merrill Lynch
  • Rob Klapprodt, President and Co-Founder, Vestmark

Are UMA/UMH and Rep as PM essentially the same thing?

While there are similarities between the Merrill UMA and Rep as PM programs as far as the end investor is concerned there are important differences, Capelli emphasized. UMA’s can include investment management delivered strategies, for example. Also, while Rep as PM can use mutual funds and ETFs to provide exposure to lower correlation asset classes, such as emerging markets, a UMA can deliver them at a lower cost using individual securities, he said.

If the goal is to create a portfolio across all of an investor’s assets, those assets are usually spread out across numerous legal entities and accounts, Clipper observed. The UMA/UMH structure is the best delivery mechanism for a holistic approach. On the OpenWealth platform, they separate out portfolio administration (i.e. rebalancing, asset location, cash management) from the intellectual property (i.e. the models). The portfolio administration is all handled in a central location, while the intellectual property can be added anywhere along the value chain, he said.

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Empowering Consumers in the Digital Age – Part 2

This is a summary of a panel session from the Fiserv Spring 2012 Client Conference and is part 2 of a two part series.  You can read Part 1 here.

Moderator:
Don MacDonald, Executive VP & Chief Marketing Officer, Fiserv

Panelists:
Benny Higgins, CEO, Tesco Bank
Jonathan Carson, CEO Digital Nielsen – leads their digital business since they acquired his company, BuzzMetrics, in 2007.
Debra Hopkins, Chief Innovation Officer, Citi – has been CIO since 2008.

What can the financial industry learn from the transformational changes driven by the Internet?

The big thing that drives success in transformations is a relentless focus on the consumer, Carson argued.  Industry leaders that subsequently failed ignored this concept.  For example, the music industry was in love with their business model that relied on consumers having to repurchase their music with each change in media format.  They used technological innovation to extract more money from their customers without corresponding improvements in the quality of their products, he noted.

The digital age taught consumers that they could have any music they wanted on any of their devices through peer-to-peer networks, Carson reminded us.  It became a valid distribution model in their eyes because the industry didn’t provide a viable alternative.  The television industry learned from these mistakes and decided not to be greedy.  Instead they are experimenting with multiple distribution models in order to provide the “dream” scenario to the consumer, which is “I want to access any content, in any format, on any of my devices, at any time I choose”. Continue reading

Empowering Consumers in the Digital Age – Part 1

This is a summary of a panel session from the Fiserv Spring 2012 Client Conference and is part 1 of a two part series.

Moderator:
Don MacDonald, Executive VP & Chief Marketing Officer, Fiserv

Panelists:
Benny Higgins, CEO, Tesco Bank
Jonathan Carson, CEO Digital Nielsen – leads their digital business since they acquired his company, BuzzMetrics, in 2007.
Debra Hopkins, Chief Innovation Officer, Citi – has been CIO since 2008.

How is your company dealing with the changes happening in the industry?

The panel started off with Higgins reciting a line from Echoes of the Jazz Age by F. Scott Fitzgerald, which was written in 1931 about the Great Depression:

It ended two years ago, because the utter confidence which was its essential prop received an enormous jolt, and it didn’t take long for the flimsy structure to settle earthward.

He related how he thought this quote could have easily been written in 2010 about the Financial Meltdown.  People think that the change they’re experiencing in their lives is unique, but the concept of change has been with us since the beginning of human civilization.

A company is defined by the decisions made by its leaders, Higgins continued.  Unfortunately, the financial industry in the United Kingdom tends to punish customers for their loyalty, rather than rewarding them, he said.  This statement is validated in a 2011 study of the UK banking system by Bain & Co:

Retail banks have long been more preoccupied, appropriately, with countering threats of fraud and satisfying regulators than focusing on the damage that their me-too products, hidden fees and indifferent service have done to undermine consumer trust. They now face unprecedented customer unrest at a time when regulatory scrutiny is ramping up under the aegis of the newly created Financial Conduct Authority (FCA).

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How Citigroup is Trying to Leverage Social Networking

This post is a summary of a session from the FRA’s 8th Annual Managed Accounts Summit. The speaker was Chandresh Iyer, Managing Director and Head of Global Custody & Investment Services, Citigroup.

Chandresh began by stating that Citigroup is looking at social networking as a means of delivering advice, since you’re more likely to do something if you see that your peers are doing it as well. A few months ago, Citi spun off a company called Bundle.com, which allows users to compare how people in various demographics are spending their money.  Bundle.com is also back by Microsoft and Morningstar.  Earlier reports put the investment by Microsoft and Citigroup at $5 million. 

Chandresh also recommended checking out a website called Wealthfront.com (formerly Kaching.com), which provides money manager screening and recommendations and facilitates direct investing by retail customers. Wealthfront provides transparency into your account(s), offers lower manager minimums, detailed manager data and drift alerts.

Could Wealthfront gather enough market share to make it a serious distribution channel? Since its inception one year ago it has attracted more than $100 million to its investing platform. They have a way to go before they even register on the distribution scale, but it’s definitely something to keep your eye on.  If they get traction, they could become the E*Trade of managed accounts.  Providing individual investors to cut out the middleman and invest directly with the managers of their choice.  I’ll be reviewing Wealthfront.com in greater depth very soon.

From a product perspective, according to Chandresh, Citi is also looking beyond traditional assets to alternative investments including private equity and commodities, Chandresh explained.  Citi Private Bank launched a new product platform called the Tailored Managed Investments Group within their Tailored Portfolio.  “Why do people in the HNW segment choose these platforms?”, Chandresh asked.  Say a $200 mm HNW client is looking for access to hedge funds.  They could go directly to a hedge fund and invest, but what they don’t want to do is be the ones to have to make the withdrawal request when the markets turn against the fund.  They don’t want to appear to be the bad guy.  They don’t want to damage the relationship that they’ve built up with the hedge fund manager.   What these platforms do is enable anonymity, he said.