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A Look at the Future: The Next Generation of Managed Account Platforms

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Title: A Look at the Future: The Next Generation of Managed Account Platforms


1
A 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

2
Content
  • The Evolving Managed Account Platform
  • Related Questions and Challenges . . .
    Point/Counterpoint
  • Conclusions

3
The 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.

4
Be 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.

5
Our Panel
  • Bob Hollinger, Partner, Barrington Partners
  • Jim Patrick, Managing Director, Pimco Advisors
  • Paul Schaeffer, Vice President, SEI Investments
  • Steve Wallman, CEO, Foliofn

6
Bob 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.

7
Jim 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.

8
Steve 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

9
The 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

10
The 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 ?

11
The 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

12
The 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
13
The 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
14
The 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
15
The Evolving Managed Account Platform Who Will
Be the Players of the Future?
16
The 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

18
Point/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

19
Point/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.

20
Point/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.

21
Point/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.

22
Point/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.

23
Point/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.

24
Point/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.

25
Point/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.

26
Point/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.

27
Platform 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

28
Conclusions
  • 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.

29
Conclusions
  • 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.
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