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.

Continue reading

IAS Responds: Which Portfolio Rebalancing Software is Right for You?

As part of my series of articles on portfolio rebalancing software, I met with some folks from Interactive Advisory Software (IAS), who were kind enough to give me a demo of not only their rebalancing tools, but their entire wealth management platform, called Solution 360.

IAS is based in Egg Harbor Township, NJ and was founded in 2000.  They have 55 employees to support around 200 firms using their platform, of which 90% are RIA’s.  They are a fully-owned subsidiary of Hanlon Investment Management, which purchased IAS from their VC backers in 2012.

I had the pleasure of speaking with Nathan Burke, CEO of IAS and Matt Wolf, Regional Sales Director who provided a high level overview of their product.  They handed me off to Wade Waller, Director of Product Management and Ryan Jotkoff, the Product Manager for Rebalancing to answer my more in-depth questions.

Tax Management Sets IAS Apart from the Competition

Tax management is probably the area that most sets them apart from their competitors, according to Wolf.  Since their platform includes financial planning and their rebalancer is tightly integrated with the rest of their system, it has immediate access to a lot of additional client information.  This helps the rebalancer make better decisions as well as generate detailed tax estimates with multi-year projections and taking into account gross income, itemized deductions and client expenses, he explained.Tax Squeeze Finger

While I usually advise clients against ‘re-inventing the wheel’, in this case, the time and effort it took IAS to develop their own financial planning functionality has paid off.  Whereas other firms force clients to import data manually or use programming interfaces that are sometimes unreliable, IAS has immediate access to all the data.

And they use this data to their full advantage across the system in ways I haven’t seen many other vendors offer.  The system has an automatic exercise feature that converts employee stock options into an underlying equity position going forwards, captures dividends and can even project the client’s future tax rate, Wolf added.

Continue reading

FolioDynamix Making Waves in Bank Trust Market

Fundfire featured an article yesterday about FolioDynamix adding a new client in the bank trust space.  They called me for comments on how the company has positioned themselves to increase bank trust market share and if their platform provides an opportunity for asset managers to sell more product.

The article is by Danielle Verbrigghe, who recently replaced Tom Stabile as the wealth management reporter for Fundfire.  I always enjoyed reading Tom’s work, talking to him at conferences and was glad to be able to contribute to a number of his pieces.  I wish him the best of luck on his new beat, alternative investments.

But wait, there’s more!

Going Under the Hood of Models-Only Programs

This 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.

Moderator: Heeren Pathak, CTO, Vestmark

Panelists:

Are some asset classes better suited for use in models-only programs?

Asset classes that are more liquid are usually easier to trade in a model, Lasker observed.  Communication is important here since some assets can become illiquid for short periods of time and the managers need to know when there are problems implementing model changes, he stated.

While some strategies are more challenging, most obstacles can be overcome so that they can be included in a model, Overway commented.  Fixed income is a good example, since the models are often provided in the from of a list of characteristics instead of individual securities.  This entails more communication between the Natixis overlay management group and the model manager about which securities would be acceptable in the model portfolio, he pointed out. Continue reading

6 Keys to Launching a Successful UMA Program

This is a summary of a session from the FRA’s 11th Annual Managed Account and UMA Summit that was held in September 2013 in NYC.

Moderator: Bill McFadden, U.S. Business Development, CGI

Panelists:
Chris Gibbons, VP Investment Product Management, PNC Asset Management
John McDevitt, CFA, SVP, Brown Brothers Harriman
Sophie Schmitt, Senior Analyst, Wealth Management, Aite Group

1. Centralize investment management processes before launching a UMA.

Schmitt explained that it would be easier for firms to launch a UMA if their investment management was centralized, since the advisors would already be used to outsourcing these decisions.  Advisors are creatures of habit and prefer to sell products with which they are already comfortable, she said.

Brown Brothers made that decision a few years ago and it was a struggle, McDevitt reported.  One important factor was communicating to their advisors that it was better for their clients to have a dedicated asset allocation team that could provide proprietary investment products along with third party mutual funds, he said.

According to Gibbons, PNC rolled out their UMA solution in late 2010 and they are now closing in on $4 billion in AUM.  While much of their growth was mandate-driven (the stick), it was easier because they already had a centralized investment management and asset allocation infrastructure in place. Continue reading

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.

Continue reading

Finding the Keys into Sponsor Platforms (2/2)

This is a summary of a session from the Money Management Institute’s 2012 Fall Solution Conference. This is part two of a two-part series.  You can read part one here.

Moderator: 
Panelists:

What is the makeup of your analyst team?

Raimer’s due diligence team is comprised of six people, all with very different backgrounds.  Some are CFAs, some are MBAs, there’s a former wholesaler, a former relationship manager, and a former product manager.  They play off each other’s strengths and also do a lot of cross training, he said.

Managing a portfolio manager’s time is always a challenge, Raimer observed.  If an analyst insists on meeting with the portfolio manager, Raimer first tries to deflect, by reminding them that they would rather the portfolio managers spend their time researching future trades.  Everyone on the team can deliver the introductory discussion around every investment strategy that they offer and this takes some of the workload off the portfolio managers.  They also have portfolio specialists and product managers and try to do everything they can to only take the PMs away from their desk when they really need to, he insisted.

Finding the Keys into Sponsor Platforms (1/2)

This is a summary of a session from the Money Management Institute’s 2012 Fall Solution Conference. This is part one of a two-part series.

Moderator: 

Bill Broderick, Principal, Investment Advisory, Edward Jones.  They launched their SMA program back in 1993 ($2.5 bil AUM), Mutual Fund Advisory (MFA) was launched 4 yrs ago and now has over $83 billion in assets, last year launched UMA ($1.2 billion AUM).  All programs are home office-driven with very limited investment lists.  There are no Rep as PM programs.  Research team consists of 20 analysts based in St. Louis, MO who build the fifty supported models.  All of their models are GIPS-compliant.

Panelists:

Steve Raimer, Partner, Director of Due Diligence, Lord Abbett & Co.  They are an independent money management firm based in Jersey City, NJ.  $127 billion in AUM.

Jeff Holland, Executive VP, Head of Capital Markets, Cole Real Estate Investments.  Cole has been in business over 30 years and has $12 billion in real assets.  They focus on long-term, high-quality,  income-producing real estate.  Jeff has been with the firm for two years and is the gatekeeper for their platform and is responsible for driving advisor adoption of new products.  Prior to Cole he was COO of Equity Trading at BlackRock.

Anthony Ciccarone, Managing Director, Head of National Accounts Business Development, Nuveen Investments.  Nuveen has around $210 billion in AUM.  Ciccarone has been at Nuveen since 2005 and in National Accounts for three years.  Prior to that he was in Nuveen’s Product Development Group for four years.

What is some initial advice for getting onto your platform?

Holland proposed that the industry is coalescing towards a 2×2 matrix; advisory vs commission and discretionary vs non-discretionary.  When moving into discretionary platforms and home office models there is a higher level of due diligence, he warned.  Does your firm have the rigor to get on these platforms?  Even in discretionary products, some firms require client approval before investing in alternatives such as REITs, he advised.

How can managers better position themselves versus their competition?

According to Raimer, there are three things that are critical for a manager: 1) know your products; 2) know the sponsor landscape; 3) know the competitive landscape.  Are you a better or complimentary solution?  Unless you are contacted as part of an active search by the sponsor, then being a complimentary solution is better.  A manager should be able to demonstrate to the analyst how they can improve their recommended list, he said.

For small managers, such as Coles, who are focusing on alternatives to the standard 40 Act funds, it can be more difficult, Holland described.  Coles has developed what they believe to be an innovative product, which is a managed account wrapper around commercial real estate.  When making the value proposition, you have to make analogies to existing products so they can understand how you fit into their platform.  A big challenge for innovative products can be just finding the right people to talk to at the sponsor, he said.

Continue reading

Has Rep as PM Growth Peaked? (2/2)

This is a summary of a panel discussion from the Money Management Institute’s 2012 Spring conference held in Chicago, IL.  This is part 2 of 2.  You can read Part 1 here.

Moderator: Jay Link, Managing Director, Merrill Lynch

Panelists:
Lorna Sabia, Managing Director, Head of Managed Solutions Group, Merrill Lynch
James Walker, Head of Consulting Group, Morgan Stanley Smith Barney
Matthew Witkos, President, Eaton Vance Distributors.  Chairman of MMI.

Is your firm coming out with any new product offerings?

According to Witkos, Eaton Vance has developed a new product that they are calling Exchange Traded Managed Funds.  It is like an ETF since it trades like a stock, except without the transparency of an ETF so that the money manager’s intellectual property is protected.

What is the sponsor perspective on mutual fund velocity?  

No one wants advisors over-trading mutual funds, Walker commented.  Firms look at trade velocity and try to keep it within a certain range, he said.  The industry should be more aware of the difference between selling mutual funds individually versus fitting them into a larger portfolio.  Walker thinks that market velocity won’t be going away any time soon.
Sabia feels that velocity is a complex topic and more data is needed to determine the impact that it might have on a portfolio.  She also stated that she believes that sponsors, advisors and managers all “own” the issue of velocity and everyone should work together to deal with it.

Continue reading

Has Rep as PM Growth Peaked? (1/2)

This is a summary of a panel discussion from the Money Management Institute’s 2012 Spring conference held in Chicago, IL.  This is part 1 of 2.  You can read part 2 of 2 here.

Moderator: Jay Link, Managing Director, Merrill Lynch

Panelists:
Lorna Sabbia, Managing Director, Head of Managed Solutions Group, Merrill Lynch
James Walker, Head of Consulting Group, Morgan Stanley Smith Barney
Matthew Witkos, President, Eaton Vance Distributors.  Chairman of MMI.
Has the growth of RPM programs peaked?  According to Dover Research, five years ago, there was $1.2 trillion of client assets in managed solutions and RPM/RAA combined were less than 30% of that total.  Today, total managed assets have grown to $2.4 trillion while rep-driven programs have increased their share to 40% or almost $1 trillion.

How important is RPM to your firm?

RPM is Morgan Stanley’s fastest growing program, Walker reported, with $560 bil in all advisory programs, $150 bil in RPM globally.  Major change in past few year has been change from individual equities (now 34%) to include ETFs, mutual funds, etc.  This is a great solution for Reps that consider themselves to be active allocators.  Trend: move towards discretion, driven by FAs practice management, customers want outcome based investing.  From a regulatory sense, it’s easier to deliver on fiduciary duty.
Sabbia joined the Managed Solutions Group seven months ago.  At Merrill, RPM is called the Personal Investment Advisory (PIA) program and was launched in 1996, now $105 bil AUM.  Approximately 4,500 FAs leverage the program and they’re segmented into three buckets: it’s their fastest growing segment with a $15.7 bil net increase last year and they’re on track to beat that number this year, she said.

Continue reading