Posts Tagged Cerulli Associates

Using Influencers to Land New Accounts

Many trust companies have more success marketing their services to the professionals who already have the ear of wealthy clients. Lawyers, investment advisors, accountants, even art appraisers are all worth adding to your network.

Plenty of trust companies are gathering assets by targeting the professional advisors who steer high-net-worth clients toward trusts in the first place.

Accountants, lawyers and other advisors rarely have the power to decide where a client opens a trust account, but they do have an enormous influence on the choice, says analyst Robert Testa, now with Wells Fargo, who I talked to back when he covered the private wealth management industry for Cerulli Associates.

“Especially for trust companies, we’ve found these reciprocal relationships with other professionals are the most effective way to gain clients,” he told me.

Think of these professionals as the Oprah Winfreys of the wealth management world. Oprah doesn’t actually sell books, but one plug from her helps millions of potential book buyers make up their minds.

The relationship between estate planner and client works a lot like this, Testa says. When a lawyer or financial planner realizes that it’s time to move assets into a trust, the client rarely has a strong opinion on which trust company to go with. Instead, what the planner usually hears is, “What do you suggest?”

Being the answer to that magic question has translated into new business for 68% of the bank trust departments that Testa’s team polled last year, and independent trust service providers would be well served to follow suit.

It’s all about relationships

Estate planners are an obvious fit because they are at ground zero whenever a wealthy family decides to set up a new trust or modify an old one.

However, if you want to get the real inside track on how potential clients’ financial situations are changing, get friendly with their accountants, Testa says.

“You would think people would be more honest with the trust officer or the asset manager, but the CPA knows everything,” he explains. “Once you get a close relationship with the CPA, you can gather the assets.”

Corporate entitities can wield influence  too. Millennium Trust got a substantial profile boost this spring when Schwab Advisor Services pointed it out to its 6,000 advisors as a custodian for alternative assets that were no longer welcome on the Schwab platform.

“What we’re able to do is go after the advisor market,” Mary Hackbarth, who heads up Millennium’s marketing, told me.  “In terms of business strategy, working with advisors as centers of influence has worked out.”

Even an influential brand goes a long way. When the Dow Jones news service wrote up trust consulting firm Advisors Institutional Services, its marketing team was quick to license reprints that paired the story with the venerable Wall Street Journal logo. While it isn’t an endorsement, the logo still has a positive influence on prospective clients.

Anyone in a position to weigh in on the decision-making process is a potential referral source. Real estate brokers and insurance agents are worth adding to your professional network because they’re often on the scene when people make pivotal life decisions or come into significant wealth.

Robert Testa also recommends cultivating more esoteric professionals on the off chance that they’ll have the right ear at the right time.

“We’ve even heard that the art valuation experts at UBS have referred their clients toward trust companies,” he tells me.

Double-edged sword

Naturally, financial planners and other registered investment advisors are a time-honored center of influence. Jocelyn Schwartz, who ran Fidelity’s estate planning business and is now a financial planner at Pillar Financial Advisors, is often in a position to direct new business to trust companies and the lawyers who write up trust agreements.

She’s also used her influence to move accounts from legacy providers.

“We do spend a lot of time reviewing existing trusts,” she told me. “Disrupting the apple cart is not our first goal, but sometimes we get a client who just isn’t happy no matter what the trustee does, and then that money has to move.”

While Schwartz is happy to work with trust companies that won’t let Pillar manage the underlying assets, other wealth managers are wary of referring their clients to a potential competitor.

“They’re afraid that giving a Wilmington or a Glenmede custody of the assets means the next call their clients get will be from a Wilmington or Glenmede investment advisor,” says Antony Joffe, whose public trust company Sterling Trustees markets to lawyers and accountants as well as RIAs.

Some trust companies get around this potential conflict of interest by only working with directed trusts and other arrangements that kick the investment responsibilities (and fees) back to the referring advisor. Sterling doesn’t quite do this—Joffe reserves the fiduciary right to fire managers even if they brought in the account in the first place—but plenty of other direct-trust-only providers do.

“We don’t compete with the intermediaries,” Reggie Karas, who runs Millennium Trust’s alternative asset business, told me. “We’re a very plain vanilla service provider by design so we can better build our business in partnership with them,” she added.

In fact, a really successful influencing relationship is always going to be a two-way street, Robert Testa says. Trust companies get the accounts, while influencers get the opportunity to prove their value as a one-stop source for all their clients’ needs—and sometimes even get prospects of their own passed back along the chain.

“Reciprocity is crucial,” he told me. “A trust company with a preferred relationship with an estate planner can suggest that person when trust documents need to be modified,” he added.

“A lot of clients who are missing a piece of their own professional advice network are at a loss. A suggestion goes a long way to getting the best outcome for everyone.”

Scott Martin, senior editor, The Trust Advisor. Steven Maimes  contributed to the research and the editing


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GlobalBridge UMA Platforms Continue to Win More Trust Firms

Trust banks and independents are flocking to the firm’s easy-to-use manager selection and monitoring as their preferred choice for UMA overlay management.

In an environment where financial institutions are grappling with the notion that you can be both too big to fail and too big to earn a decent profit, banks and trust companies alike are adopting unified managed account (UMA) overlay wealth management as the answer.

GlobalBridge, a Minneapolis-based UMA overlay solutions provider, has seen demand for its services surge as the logic of outsourcing day-to-day investment decisions in order to focus on client relationships becomes crystal-clear.

The company now distributes the money management expertise that runs $440 million in client assets for 65 banks, independent trust companies like Atlanta’s Reliance Trust, a few independent broker-dealers and even a number of advisory firms.

Most recently, the company added River Rock Asset Management to the list and is currently negotiating with several other potential customers.

Delegating non-core wealth management functions like trading and back off routines, manager due diligence and research is a big part of the modern strategic landscape for any trust operation, explains GlobalBridge CEO Kelly Coughlin.

“Successful firms in the industry are focusing on their core competencies and offloading the rest,” he says. “This is a common theme in modern business, but it’s more important now than ever.”

Specialization is the key

Globalbridge’s UMA overlay system gives clients the benefits of world-class investment ideas at a better price than its competitors — for both the investor and the firm applying the overlay.

As industry analyst Robert Testa of Cerulli Associates has pointed out, freeing trust officers from the responsibility of performing as “pseudo-portfolio managers” eliminates distractions and lets them focus on their core competency: managing relationships with trust grantors and beneficiaries.

But refusing to delegate may be strangling bank trust departments in particular. Bernard Garbo, publisher of Trust Updates, notes that trying to do everything in-house can have a serious negative impact on profitability in today’s financial services industry.

“The most profitable trust institutions are simply not full-service organizations,” he says. “They are generally focused on only two or three markets, whereas 90% of the bank trust departments take a full-service approach to as many as five or six key account categories.”

On the independent trust company side, overlay can be a competitive advantage by giving a firm with limited in-house proprietary wealth management expertise present an investment services profile that compares with its biggest white-glove rivals.

Here, too, specialization is the secret. An independent trust company or regional bank can still focus on differentiating its investment platform in one or two proprietary strategies — large-cap value, for example, or municipal bonds — without having to support everything other asset class under the sun.

In fact, in June, $70 billion Reliance Trust teamed up with GlobalBridge to co-develop and cross-sell overlay solutions into the RIA and independent broker-dealer channels.

By letting both Reliance and GlobalBridge focus on what they do best — trust and custodial services, on the one hand, and managed accounts on the other — the deal “puts both firms in a solid position to deliver industry-leading open architecture investment platforms,” said Reliance CEO Anthony Guthrie when the deal was announced.

The UMA advantage

While older forms of open architecture investment management — separately managed accounts or SMAs — have failed to catch on with fiduciaries unwilling to actually sign over the underlying assets to the outside managers, systems like what GlobalBridge offers take a more sophisticated approach.

Instead of SMAs forcing a bank or trust company to export client funds, these new products work on a unified managed account or UMA model that keeps the assets in-house and imports the expertise of third-party managers.

This expertise is then applied or “overlaid” onto the UMA assets, creating a mirror of what the outside manager would do with the money — but without ever giving up control of the funds.

The bank or trust officer chooses which managers to use and how to allocate the portfolio among their strategies — GlobalBridge has about 70 managers and over 100 separate strategies to choose from, for example.

Because the funds remain in-house in a UMA system, trust officers can monitor and tweak the models to reflect their in-depth knowledge of their clients’ situations and overriding wishes.

Tax efficiency and the ability to screen investments to comply with a trust grantor’s investment policy statement are only the tip of the iceberg here.

Integrated solutions like what GlobalBridge offers can streamline the work of “managing the managers” by as much as 75% or even more, ensuring that both compliance and the fiduciary duty to invest client money the best way available are satisfied.

That kind of cooperative approach is the heart of the overlay philosophy, Coughlin says.

“We want to build our business around clients we enjoy and have mutual respect for,” he says. “Each of us wants to make sure the other is creating value, not trying to find who can do something for the lowest price. It’s always got to be a mutual thing.”

Scott Martin, contributing editor, The Trust Advisor Blog. Jerry Cooper contributed to the editing.


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Why Aren’t Overlay Providers Closing the Sale?

Cerulli survey says wealth managers don’t understand and aren’t buying UMA overlay capabilities. One firm, Smartleaf, bucks the trend and continues to close deal after deal. Here’s why.

When industry research firm Cerulli Associates released its latest benchmarking report on unified managed accounts (UMAs), the headlines screamed that advisors just weren’t buying into these theoretically advisor-friendly investment vehicles.

According to Cerulli analyst Jeff Strange, less than half of the financial advisors he surveyed have ever used unified management accounts and roughly 80% have no plans to rely on UMAs more in the future.

“They still don’t understand why UMA is beneficial to their process,” Strange tells the Trust Advisor. “A big part of that is still just that the providers haven’t taken off the training wheels yet.”

While about $80 billion is now managed on UMA platforms, new flows have been stubborn to capture. Only $1.7 billion in new money came to UMAs in 2008 and while aggregate AUM in these vehicles jumped 70% in 2009, most of that growth was simple appreciation in a bull market year.

Overlay providers fire back

Statistics like that are frustrating for companies that sell UMA software and investment models on the premise that UMAs are better for trust companies, banks and advisors than either traditional mutual funds or separately managed accounts (SMAs).

Both UMAs and SMAs tap the expertise of third-party managers to build a customized investment portfolio. However, while an SMA exports the assets to the outside managers to run, UMA assets never leave the sight of the bank or advisor that landed the client in the first place. Instead, the UMA imports the manager’s expertise and applies it to the assets in what’s called an “overlay.”

Trust officers and other advisors can then tinker with the overlay to improve tax efficiency, balance out clients’ outside holdings or obey restrictions against investing in various types of companies—tobacco, for example.

While the combination of flexibility, best-of-breed investment models and custody of the underlying assets should be a win with advisors, most overlay providers still have well under 100 clients on their platforms.

But those narrow client lists—and the Cerulli data—disguise the fact that while the typical RIA may not be eager to sign up, the institutions that are adopting overlay approaches tend to be banks and other relatively big wealth managers.

While a vendor like Smartleaf may only have about 50 clients running its overlays, those elite four dozen institutions still manage about $31 billion in AUM between them. This effectively makes Smartleaf the leader in the bank UMA marketplace.

Most of our clients are banks now, says Smartleaf president Jerry Michael. And many of those banks are pretty big names like BB&T, BBVA Compass and, most recently, Bank of Hawaii’s $6 billion investment services group.

Scale is a big part of the UMA value proposition. Specialized vendors like Smartleaf (which provides the back office software that supports these accounts) and Placemark (which gathers the proprietary investment models) cater to firms that already have accounting systems, trading systems and the dedicated IT staff to keep them talking to each other.

Resellers like Concord Wealth Management and others, package and resell Smartleaf with enhancements into an integrated solution for smaller players like the archetypal independent broker fresh out of the wirehouse.

If you’ve got 100 clients, you can probably build them customized portfolios yourself. But as Placemark CEO Lee Chertavian tells me, going the overlay route looks a lot more cost-effective if you’re running $5 billion in 13,000 client accounts.

“Overlay management can be as simple as an accounting solution to combine separately managed assets or as complicated as a system that helps an institution make better investment decisions,” he explains. “We’re on the far end.”

The real buyers don’t need to be sold

Banks that have the scale and the sophistication to benefit from true UMA programs rarely need much of a sales pitch, Smartleaf’s Jerry Michael says.

“Often as not, they approach us,” he notes. “Firms with strategic objectives requiring change tend to see it as a must-have product. Firms looking for incremental improvement are more reluctant.”

The ability to bring in outside expertise while retaining ultimate discretion is especially attractive for trust companies and other fiduciaries, Michael says. Farming out the assets in an SMA approach rubbed too many banks—not to mention RIAs reluctant to “share” their hard-won clients—the wrong way.

“SMAs just didn’t work for banks,” he explains. “They like being fiduciaries. They wanted to remain fiduciaries, but they needed to open up their wealth management to outside research. This lets them have their cake and eat it.”

Of course, concentrating on the bank channel contains its own challenges. The only client Smartleaf has lost in its 10-year history was when Regions Financial bought Union Planters and threw out its UMA systems.

That’s true of the advisor channel as well. Jeff Strange at Cerulli acknowledges that much of advisors’ distrust for UMAs comes from the notion that overlays are not portable from one broker-dealer to another, and too complex for the typical independent operator to run on his own.

“You can take the mutual funds and the underlying securities with you, but the tax management and other features are not transferable,” he says. “Same with the specific mix of asset managers you have running the portfolio.”

For Jerry Michael, the important thing is clearing up the vagueness surrounding these accounts and what they do.

“I personally twinge when I hear the word UMA,” he says. “It’s too confusing.”

“There’s one type of UMA that’s really just a souped-up SMA that helps the institution monitor what the outside managers are doing in all the separate accounts. Then there’s what we do, where the outside managers’ brainpower is brought in to sit on that truly unified internal account.”

Scott Martin, contributing editor, The Trust Advisor Blog. Steven Maimes contributed to the research and the editing.

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Overlay Management Hits the Big Time Among Once-Stodgy Trust Companies

New “overlay” technology puts sub-manager’s real-time performance on trust firms’ radar screens. Benefits include enhanced performance and less mistakes. Our survey reveals New Jersey-based Concord Wealth Management steals the show.

More independent trust companies than ever are relying on overlay management software to streamline their investment process. However, finding the right fit can be difficult if you don’t know exactly what you’re looking for.

“Self-described overlay vendors run the gamut,” says Robert Testa, an analyst at Cerulli Associates who covers the wealth management industry. “Some simply provide access to third-party investment models. Some provide a more comprehensive technology solution.”

At its most basic, an “overlay” is simply a model used to determine how a given account should be invested. In traditional separately managed account (SMA) structures, the money is actually delegated to multiple outside managers to invest, but in an overlay system, the assets—and the ultimate responsibility—stay together in a unified managed account (UMA).

The UMA approach made sense for trust companies like Alaska Trust, which bought an overlay system from Matawan, NJ-based Concord Wealth Management about a year and a half ago.

    Guide to Trust-Friendly    Overlay Providers




Designs, develops and administers wealth management programs for financial institutions. 70 customers including Alaska Trust. Since 1975.


A leading global provider of information management and electronic commerce systems for the financial services industry. Many customers. Since 1984.


Wealth servicing innovation and platform technology modernization. 115 customers including Northern Trust. Since 1999.


Offers managed account platform services to trust banks and institutional investors. 90 customers including Reliance Trust.


Advisors for individual and institutional investors. Division of Natixis Asset Management. 30 customers including FundQuest. Since 2003.


Industry-leading provider of structured portfolio management and overlay portfolio management. Since 1987.


Investment industry’s leading overlay manager for enabling UMAs. 25 customers including Piper Jaffray. Since 1999.


Provides real-time technology platform for integrating portfolio management and backoffice functions. 40 customers including UBS Global Asset Management. Since 2001.

Source: Internal Research.

“We really felt that investment management had become a utility just like the electricity at your house,” says Matthew Blattmachr, who runs the Alaska Trust system. “But we didn’t want to outsource the actual management. We wanted to make sure those assets stayed in-house.”

Flexibility, customization

It took Alaska Trust about a year to pick an overlay vendor once they decided to make the change. After auditioning several platforms, they chose Concord because it offered the best combination of flexibility and a-la-carte pricing.

“We just wanted the overlay,” Blattmachr says. “Our backoffice already provides some of the other capabilities that go into an UMA solution. And we wanted to make sure we weren’t going to get a cookie-cutter solution.”

Cost was another factor. A Concord system starts at around $50,000, which can be relatively inexpensive depending on the number and complexity of the investment accounts  a would-be customer is working with.

Robert Testa says that while other trust providers use similar criteria to find the best match, their motivations are often different.

“The bank trust departments in particular are looking to move away from proprietary asset management in order to streamline their operations and costs,” he says. “And some want to move away from the old stodgy image by offering more esoteric products.”

Developments in the larger accounting and compliance environment are giving some trust companies—banks and independent operators alike—a new incentive to consider switching to an overlay approach.

Trust officers looking for a way to break out investment fees from other expenses in the wake of Knight vs. Commissioner may need to change their accounting systems anyway, Testa says. “This presents them with an opportunity to offer UMA-style vehicles as part of the normal upgrade cycle,” he says.

A lower-cost solution

Depending on the exact solution a trust company picks, the long-term savings can be profound.

Just moving from a traditional SMA approach will provide access to the same institutional-level investment options at a lower price—not to mention cutting down on the amount of time and money it takes to manage the managers.

Many overlay systems also contain built-in due diligence and reporting functions that lighten the administrative load of coordinating with the underlying money managers. That’s especially attractive for a fiduciary institution that needs to ensure compliance with a trust account’s investment policy statement, but might not have the internal resources to keep one eye on the portfolio at all times.

In fact, there are overlay systems out there that let trust companies cut their fiduciary compliance costs by 75%.

“You can reorganize your staff,” Testa observes. “Bringing in a third-party solution relieves trust officers of the responsibility of being pseudo-portfolio managers and lets them go back to being full-time relationship managers.”

Finding a way to outsource the models while keeping the assets in-house was important for Alaska Trust for both fiduciary and client service reasons, Matthew Blattmachr says.

“A trust company can have a difficult enough time convincing clients to give us control of their assets without telling them that those assets would be managed by someone else,” he explains. “We didn’t think a lot of people would be receptive to that.”

Best of both worlds

To put this story together, the Trust Advisor team talked to a lot of other great overlay companies—the chart above lists a few of the top players out there—and each has its strong points. With about 70 clients, Concord is not the biggest shop out there, but it won points for giving independent trust companies like Alaska Trust a “best of both worlds” solution.

Most overlay vendors focus on either the RIA market or on the big banks. RIA specialists tend to provide more comprehensive systems that completely outsource the investment management piece, while those that mostly work with big banks often end up selling just the models and not the software that an independent trust company needs.

Trust companies often fall in the gap between the two models, says Roy Wheeler, who heads up business development at Concord. While they generally prefer to hire and fire their own third-party managers (like a bank), they often need technological support to make the process more efficient.

“On the trust side, they want the overlay, but they need to be the overlay manager,” he explains. “That’s where an overlay system can add value.”

Either way, business is booming. All the overlay providers we talked to say their client pipelines are packed with banks and trust companies, and some are looking at 75% to 100% growth over the next year.

It isn’t hard to see why. UMAs have been working their way through the RIA world for a few years now, and should represent a $327 billion market by 2013 according to data from industry research firm Celent.

Banks and independent trust companies have been relatively slow to catch on, but they’re moving in with a vengeance, Robert Testa says.

“Some of the vendors are very busy right now,” he explains. “Even trust providers often complain that they can move at a glacial pace, but this is where the industry gets going on the overlay front. This really is the way of the future.”

Scott Martin, contributing editor, The Trust Advisor Blog. Steven Maimes and Jerry Cooper contributed to the internal research.


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SNL Financial to Present Special Trust Webinar June 29

The trust industry is in flux, and SNL Financial is holding a one time special online seminar on June 29 to help bankers, wealth managers and other professionals adapt to the changing environment.

Three veterans of the trust business — Robert Testa of Cerulli Associates, Jon C. Walls JD of Principle Management Consulting, and Jerry Cooper, publisher of The Trust Advisor Blog.

They will explore challenges and opportunities facing both the industry and the broader economy:

Why are wealthy families pulling their money out of traditional bank trust departments and moving to independent trust companies?

What do today’s high-net-worth clients want from a fiduciary relationship, and how can established vendors and new players alike give it to them?

What are the best business models and jurisdictions for new and old trust companies alike?

This one-hour event is free to SNL Unlimited subscribers and counts as continuing education credit for both the CFA Institute and the National Association of State Boards of Accountancy.

For more details and timing, along with pricing information for non-subscribers, take a look at

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