Title: A Look at the Future: The Next Generation of Managed Account Platforms
1A Look at the FutureThe Next Generation of
Managed Account Platforms
- Moderator Chuck Widger, CEO President, Brinker
Capital - Panelists Steve Wallman, CEO, Foliofn
- Jim Patrick, Managing Director, Pimco Advisors
- Bob Hollinger, Partner, Barrington Partners
- Paul Schaeffer, Vice President, SEI Investments
2Content
- The Evolving Managed Account Platform
- Related Questions and Challenges . . .
Point/Counterpoint - Conclusions
3The Next Generation
- To see the next generation of managed account
platforms, we need to - Look at whats in place today
- Observe the changes currently underway, and
- Be aware of the issues and challenges faced by
current platforms and coming changes to these
platforms.
4Be Mindful
- The need for the advisor wont change.
- Managers of SMA platforms need to keep the
advisors business model and business practices
in mind, or - These managers will miss-allocate their capital
as some have done in the past.
5Our Panel
- Bob Hollinger, Partner, Barrington Partners
- Jim Patrick, Managing Director, Pimco Advisors
- Paul Schaeffer, Vice President, SEI Investments
- Steve Wallman, CEO, Foliofn
6Bob Hollinger, Barrington Partners
- Barrington Partners is a Boston-based research
and consulting firm. We focus exclusively on the
financial services marketplace (mutual funds,
hedge funds, separate accounts, etc.). Our
research publications cover both domestic and
international transfer agency, fund accounting,
hedge fund and separate account technology
solutions. Our consulting services include a
broad continuum from strategy and product
positioning to systems selection. We also provide
buy and sell side MA services to a number of
domestic and international clients. - We see significant managed accounts technology
related initiatives in two areas - Integrating multi-disciplined account analytics,
tax sensitivity and rebalancing to facilitate
automated trade initiation and reconciliation. - Adoption of standards to enable universal
participant access.
7Jim Patrick, PIMCO Advisors
- PIMCO Advisors is the retail distribution entity
responsible for PIMCO, Dresdner RCM, NFJ,
NicholasApplegate, and Oppenheimer Capital
products. - Our strategy is to have parallel distribution
capabilities for all products regardless of
channel (i.e. in a crowded marketplace if an
advisor knows a story and likes a product,
he/she should be able to access it in all of the
venues they are accustomed to (MA, MF, 529,
402K, etc.) - Current MA focus is to continue to leverage the
operations infrastructure in NY where all firms
clear centrally in a coordinated fashion via
our balanced, hybrid, and multi-discipline
capabilities.
8Steve Wallman, FOLIOfn
- The FOLIOfn platform is a single investment
engine and technology that can be deployed in
multiple overlapping and complementary channels - Retail, advisor, SMA/MDA, advised accounts,
recommended accounts - FOLIOfn is also a fully licensed, SIPC-insured,
third-party and self-clearing broker-dealer
licensed in all states - Able to deliver its own innovations directly to
the marketplace - Able to allow the transition for financial
services companies from immediate delivery of an
outsourced solution with low start-up costs to
internally owned and licensed technology and
infrastructure - Patented technology and tools for financial
services companies
9The Evolving Managed Account Platform Platform
Discussion Topics
- Review the basic types of SMA platforms
- Discuss key benefits of technology
- Note recent list of technology enhancements
- Take a look at a list of functional requirements
for an SMA Platform
10The Evolving Managed Account Platform Current
Platforms
- An array of platform models and enhancements
exist and are evolving - The array of platform models and enhancements
include - Full-service managed money, unified managed
account and wealth management services at the
major wirehouses and money center banks - Clearing firm full-service/infrastructure managed
account/wealth management SMA platforms - Independent full-service managed account/wealth
management SMA platforms - Infrastructure managed account SMA provider
- Investment management firm as an SMA provider of
multiple proprietary styles - Early supermarket ?
11The Evolving Managed Account Platform Platforms
of the Future
- These platform models are evolving to include
outsourcing - Rationale for outsourcing
- Better margins through specialization. Marriage
of strengths between provider and outsourcer. - Encourage innovation in product, client service
and infrastructure - For sponsors distinguish firm in marketplace
through innovation and adding wealth management
services - For managers avoid cost and headaches of
administration of a large number of accounts and
multicustody relationships - Leverage scale and infrastructure investment in
people and hardware - Quick entry into market
- Large entrants include State Street, Mellon,
BONY, PFPC
12The Evolving Managed Account Platform The Role
of Technology
- Drive labor and operating costs out of product
delivery - Provide seamless and timely service delivery to
sponsors, money managers, advisors and investors - Facilitate account portfolio administration
Barrington Partners
13The Evolving Managed Account Platform Recent
Product Evolution
- Lower investment minimums
- Investor-specific customization restrictions
- Multiple investment disciplines per investor
- Timely, integrated holdings views
- Consolidated monitoring and reporting
- Tax awareness sensitivity
Barrington Partners
14The Evolving Managed Account Platform Functional
Requirements
- Portfolio accounting
- Account administration
- Asset allocation administration
- Investment model administration
- Analytics
- Rebalancing
- Tax Optimization
- Performance Analysis
- Multi-language
- Multi-currency
- Multiple Disciplined Accounts
- Compliance
- Standing orders
- Reporting
- Trade order management
- Workflow management
- Reconciliation
- Pricing
- Benchmarks/Indices
- Custodians
- Aggregation
- Corporate actions
- Research
- Trading
Barrington Partners
15The Evolving Managed Account Platform Who Will
Be the Players of the Future?
16The Evolving Managed Account Platform Who Will
Be the Players of the Future?
17- Related Questions and Challenges. . .
- Point/Counter Point
Issues for the Players of the Future
18Point/CounterpointIssues for the Players of the
Future
- Question Will asset levels go
even lower? - Point Technology enables SMAs to go down scale.
Can make money at levels as low as 250,000. - Counter Point(s) Difficult to do unless you have
the right technology
19Point/CounterpointIssues for the Players of the
Future
- Question Whats more
importanttechnology or service? - Point Technology drains cost out of the product,
eliminates service issues and delivers service in
a more timely fashion. - Counter Point(s) Some technology advances may
create benefits which are not worth the advisors
time. For example, 25,000 SMAs may not offer
enough compensation for the time required by the
advisor to service the account. - Observation Technology enhancements need to be
built around the business model and best
practices of the advisor.
20Point/CounterpointIssues for the Players of the
Future
- Question Will unified managed
accounts be an industry standard? - Point Places SMAs, mutual funds, ETFs,
variable annuities on same platform, statements
along with single client investment advisory
agreement for advisor. - Counter Point(s) Presentation automated but
operations are manual and not integrated.
21Point/CounterpointIssues for the Players of the
Future
- Question Whats next for fee
disclosure? - Point More to come because transparency better
for client leads to fewer conflicts of interest
greater opportunity to mix and match services
with a la carte pricing. - Difficulty Investor clients lack sophistication
to mix and match, make true price comparisons and
therefore find comfort in single comprehensive
fee. Mix and match services and a la carte
pricing by sponsors to advisors and
broker-dealers appeals to search for
manufacturing profits but leads to ineffective
programs.
22Point/CounterpointIssues for the Players of the
Future
- Question Will the price for
SMAs go down? - Point Technology enhancements, increased
disclosure and market forces will lead to further
price reductions in SMAs. - Counter Point(s) Significant further price
reductions are unlikely because 1. Manager
overhead will prevent further decreases in
manager fees, 2. SMAs are now very competitive
with average mutual fund fees and 3. SMA
providers need to achieve a ROE. - Institutionalization of business chases
entrepreneurial talent. Large sponsors force
managers to lower fees, consequently talent goes
to hedge funds, absolute return products.
23Point/CounterpointIssues for the Players of the
Future
- Question Will an SMA supermarket
come soon? - Point Large players have constructed parts of an
SMA supermarket similar to the funds supermarket. - Counter Point(s) The supermarket concept may not
apply to SMAs. The individual investor seeks
customization which is difficult to mass market
through a supermarket. The consumer for SMAs is
the advisor not the individual investor. The
advisor requires education and sales and
marketing support, plus a range of services
including due diligence, oversight, reporting,
asset allocation and portfolio construction.
24Point/CounterpointIssues for the Players of the
Future
- Question Will the SMA as a
unified managed account, a.k.a, control
account, become the dominant model? - Point Because of tax efficiency and
personalization, advisors will initially attract
investors to an SMA and provide diversification
through mutual funds, variable annuities, ETFs,
etc. and also be able to sell credit cards,
mortgages, etc. - Counter Point(s) More sophisticated advisors may
sell this broad array of products, yet most are
unable to focus on more than 2-3 products at a
time. Less sophisticated advisors will gravitate
to selling more sophisticated packaged programs
which include a core-satellite asset allocation
program. And, an emerging argument for absolute
return hedge fund products will get advisor
attention.
25Point/CounterpointIssues for the Players of the
Future
- Question When and will
operations improve? - Point 1. Standards for interchange of data, 2.
Technology which can automatically rebalance
portfolios back testing results show automated
rebalance can improve performance, 3. Tax
efficient software. - Counter Point(s) Automatic rebalance assumes no
art to investment management discipline. Current
participants protect proprietary interfaces and
custodial relationships. Participants distracted
by internal issues.
26Point/CounterpointIssues for the Players of the
Future
- Question Will MDAs continue to
gain traction in the marketplace? - Point Recent technology enhancements support
multiple disciplinary accounts and overlay
management. - Counter Point(s) No broad adoption yet. Overlay
management can be an issue.
27Platform AlphaThe Ideal Platform
- Efficiencies
- Ease of Implementation
- Scalability, Virtually Unlimited
- Online Account Setup
- Simple Portfolio Initiation and Re-Balancing
- No Reconciliation
- Online Information for Advisor and Client with
Permissioning Levels - Automated Proxy Voting
- All web-based
- Etc.
- Broad Enterprise-Wide Application
- Can Support Wide Variety of Programs - SMAs,
MDAs, Broker-Advised, Mutual Fund Wrap,
Fee-based Brokerage, etc. and Any Combination - Economics
- Licensed or Outsourced Total Pricing
Flexibility - Minimized Costs of Account Setup and Ongoing
Account Administration - Significant Savings vs. Current Alternatives
28Conclusions
- No total solution exists for the challenges SMAs
face. - Outsourcing firms and technology vendors are
addressing need for specialization, efficiency,
better margins and improved functionality. - Large firms will build single integrated product
platforms but will be forced to sub-optimize
functionality to meet the integration standards
of the base system, i.e, home grown wont be best
of breed.
29Conclusions
- Smaller firms will seek specialized applications
and will struggle to integrate the specialized
applications into a single cohesive platform.
Also, investment management firms may limit
distribution of high alpha product to a small
number of sponsors. - SMA platforms will change, the change will be
evolutionary with the potential for a
revolutionary change that could be exciting.
Tomorrows key players will be todays key
players who get the change correct. Those who
make the correct choices and successfully
integrate efficient technology applications which
add value to the advisors business model will be
the winners. These decisions will require
management seasoned in the SMA industry.