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

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.

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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.


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


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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Rep as PM: The Inside Scoop – Part 2

This post is a summary of a session from the MMI 2011 Fall Solutions Conference that was held in NYC. It is part 2 of a 2 part series. Click here to read Part 1.

Marc Zeitoun, Managing Director, Head of Distribution, Rydex/SGI

Jay Link,
Managing Director, Managed Solutions Group, Merrill Lynch
Peter Malafronte,
Executive Director, Managed Accounts, UBS
George Raffa, National Sales Manager, Asset Management Division, SVP, Raymond James

I felt that this was one of the most useful sessions at MMI because the panelists all shared lots of information about their firm’s advisory business, including statistics (my favorite) and details about the inner workings of their programs. Also, the moderator did an excellent job moving things along and asked insightful follow-up questions, which gave the panelists a chance to elaborate on some key concepts and helped make the session more interesting.

How do Rep as PM and Rep as Advisor programs work together?

Peter agreed that the two platforms are complimentary and the decision as to which to choose is mainly a client preference issue. It depends on whether or not they want to be involved in the decision making process, he said.

Also, Rep as Advisor is sometimes considered to be a “farm league” for RPM clients, Peter joked. Once a client has worked with an advisor in a non-discretionary program, has developed trust and understands how the advisor thinks about investments, portfolio construction and managing risk, that client is more likely to feel comfortable moving into a Rep as PM program, he asserted.

Marc added that the conventional wisdom says that RPM assets are the stickiest and least litigious. Additionally, they have higher levels of client satisfaction.

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Ten Ideas for Advisory Business Success from Mark Tibergien – Part 1

Mark Tibergien told everyone to step back and think about the advisors that they’re servicing and ask “what are ten things that will truly change the way we think about our business?”


This post is a summary of a session from the MMI 2011 Fall Solutions Conference that was held in NYC in September.  It is part 1 of a 2 part series.  You can read Part 2 by clicking here.

The speaker for this session was Mark Tibergien, Chief Executive Officer of Pershing Advisor Solutions, a BNY Mellon company.

1. Managing Growth

What is the rate of growth that we’re seeing in the advisory industry today, Mark asked?  After 2008, the rate of organic asset growth was reduced for most advisory firms, he noted, so they have to attract new clients in order to grow.  Attracting new clients creates new layers of complexity that make it difficult to manage growth.

Managing growth is not only about growth of assets but also about growth of the firm itself.  Growth creates opportunities to develop staff, to create succession plans and to generate profits.  But it also places strains on advisory firms in the area of span of control, as well as:

  • Dilutes the firm’s sense of purpose
  • Impacts the quality and consistency of service
  • Reduces the efficiency of resources

What is the optimal number of client relationships that the average advisor can manage, Mark inquired? Depends on the nature of the model. Pure money managers can handle more while a family office might be lower.

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LPL Strives to Improve RIA Practice Efficiency

This post is a summary of a session from the MMI’s 2011 Annual Convention:

In 2010, LPL Financial grew the AUM on its hybrid RIA platform from $7.3 billion to $13.5 billion, an 85% jump. One of the main drivers that is attracting independent brokers is LPL’s ability to improve practice efficiency.

This point was highlighted by the keynote speaker of the MMI 2011 Convention, Mark Casady, Chairman & CEO, LPL Financial. Mark described the results of a PriceWaterhouseCoopers study commissioned by LPL that found their RIA practices to be 20% more efficient than other platforms. The study also reported that LPL practices generate 80% more revenue per client.

Advisor efficiency is an important metric at LPL. The average advisor can support around 300 households, Mark reported. The industry will need to use a combination of technology and best practices to increase this to 400-600 households ten years from now.

According to a study done by Curian Capital, a Denver-based registered investment advisory firm, 62% of advisors said improving efficiency and overall time management is a major goal for the coming year. One way to reach this goal would be through the use of improved technology platforms, like the one provided by LPL.  Being able to view all of a client’s holdings on a single platform was mentioned by 74% of advisors.  These advisors would benefit from an aggregator such as ByAllAccounts or Albridge (now an affiliate of Pershing).

“Advisors value tools and resources that can help support the marketing and development of their businesses,” according to Mark Schoenbeck, a senior vice president and chief marketing officer at Denver-based Curian Capital. “Providers will need to focus on ensuring that their support programs are practical, relevant and easily accessible, so advisors can quickly and efficiently grow their business.”

Mark pointed out that there aren’t enough advisors in the world.  The number of licensed retail advisors has hovered around 330,000 for past decade and there are about 15-16,000 RIAs.  LPL is looking for ways to make them more efficient so they can handle larger books of business, Mark said.

Advisors have been continuing to invest in technology throughout the financial crisis, according to George Tamer, director of strategic relationships at TD Ameritrade, who was quoted on AdvisorOne.com as saying that:

“…advisors realized one of the ways to get through this—to reign in expenses—is to invest in efficiency; they don’t see technology as an expense, but as an investment.” Tamer noted that it “might not be sexy to buy a CRM system,” but if doing so allows a firm owner to increase the firm’s human capital yield by “increasing non-revenue generating efficiency” it can produce clear bottom-line returns.

One way that LPL has enabled advisors to handle more accounts is via their All ETF Program in conjunction with BlackRock. This program added $1 billion in AUM in its first eight months, Mark reported, and it also increases the practice efficiency by “outsourcing” the investment selection and allowing the advisor to focus on relationship management.

LPL also focuses on practice management, Mark noted, by helping advisors to better support their business today and improve profitability. For example, when they analyzed pricing across their client base and adjusted for practice size and region, they found that most of their advisors were underpriced! They developed “suggested retail pricing” in different parts of the country.