In a few days, an elite 500 or so bankers and other financial professionals will be in Scottsdale, Arizona hammering out the future of high-net-worth advice, and open architecture investing will be front and center.

The American Bankers Association is the elite trade group representing the industry. Just attending the three-day conference can count as a full year of continuing education credit for certified financial planners.

And on average, the people there manage well over $1 billion apiece.

With that kind of firepower packed into one place, the talking points are likely to set the tone for wealth managers and trust companies over the next year.

The “holistic” era is here

If the list of exhibitors is any guide, this is the year giants and niche players alike aggressively roll out solutions that give advisors a 360-degree view of their clients’ finances while keeping the assets under direct supervision.

“Our goal this year — as always — is to give trust companies the tools they need to be as effective, profitable and client-centered as they can be,” says Jonathan Flitt, director of Citibank’s Investor Services unit. 

Flitt’s team will be coaching the crowd at booth 312 how true front-to-back open architecture solutions are finally available and already transforming the business.

The linchpin here is Citi’s “unified managed household” structure, which aggregates data across all accounts- — trust and brokerage, throughout a client family’s financial life — and then gives the advisor the keys to that fully loaded car.

Naturally, a clearer view of the data means more efficient wealth management practices.

And as these solutions move toward the center of the industry, Flitt says early adoption can get firms ahead of both the learning curve and the earning curve.

“Wealth managers who are already thinking in these terms can definitely grow their assets at the expense of competitors who aren’t,” he says

Once niche products, the unified managed account structures that make those efficiencies possible are already hitting the mainstream — and again, there will be plenty of UMA vendors exhibiting their wares at the ABA conference.

The proposition driving advisors to adopt UMA structures is simple. By importing the best investment ideas the industry has to offer, even a small institution can give its clients best-of-breed portfolio management without breaking the budget.

And unlike conventional “separately” managed accounts that export the assets to the third-party managers to trade, UMAs let a trust company or other fiduciary retain direct custody.

The money doesn’t move. Only the investment models come in to be “overlaid” on your client’s wealth.

One product they’ll be talking about in Scottsdale is Smartleaf’s model distribution service, which promises to streamline both sides of the overlay relationship.

“This will make it much easier for wealth managers to bring in outside models, track the ideas they’re using and automatically receive updated models as they change,” says Jerry Michael, the company’s present.

Once the web-driven version of this product rolls out, you can think of Smartleaf as the “app store” of investment strategies for participating advisors to load with all the third-party models they need.

As the “idea store,” Smartleaf handles the billing and the bookkeeping. And because participation is open to any manager willing to sign up, the architecture is completely open.

Naturally, the relationship can go both ways, Michael tells me.

He has a few customers who push one or two in-house specialty strategies back out for other firms to buy while importing the models that run the other allocations in their clients’ portfolios.

As a result, he says, if the flows work out right, that push/pull approach to overlay management can become both a cost-saving measure and a bona fide profit center — a promise few wealth managers can pass up.

Automating the back office

Smartleaf is also deepening its own “holistic” capabilities to let participating advisors automate basic tax strategies across third-party allocations, ensuring that the right shares are sold to match capital gains to losses.

Automation is also in the air in the trust accounting space.

Infovisa is coming off a record-breaking sales year and is eager to demonstrate its new automated account review and risk management systems at the ABA show.

“Prospective clients who currently use similar products offered by our competitors have also told us it is more functional and user-friendly,” says Mike Dinges, the company’s president.

One edge here is integration. Infovisa runs those risk management tools right in the accounting platform, eliminating the need to run two applications at once and pass data between them.

This, in turn, cuts down on the amount of babysitting that staff have to do and lets the automation actually save labor instead of creating new work.

And as for 2013, Dinges tells me he’s got a true industry smash moving toward the launch pad: mobile applications.

By this point, just about everyone in the business who wants a tablet computer has one — and if not, vendors like Citi are giving iPads away.

But even in high-powered groups like the ABA, mobile interfaces have lagged the hardware. Next year, once the account structures are in place, that may finally change.

Scott Martin, senior editor, The Trust Advisor.

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Competition between trust accounting platforms goes nuclear as banks and independent wealth managers look for ways to automate the heavy lifting and get back in front of their clients. Moving off the desktop and onto iPads is the next revolution, technology vendors say.

Trust officers who were once famously cautious when it comes to making big changes are suddenly open to ripping out and replacing the accounting system — the heart of their business — to get a competitive edge.

Click for Download

As a result, software companies are racing to unveil tablet computer support and other high-tech enhancements while their prospective customers are still in the mood to shop around.

“Institutions across the board are definitely investigating what’s out there,” says Mike Dinges, president of trust accounting software vendor Infovisa, which is working hard on the iPad version of its system.

“We are on the edge of a revolution in terms of how everyone does business,” he adds. “There will be winners and losers.”

To track the vendors leading the way, we polled the industry and came up with a list of the top trust accounting software companies out there. You can see it by clicking here or on the thumbnail above.

Out of the back office…and out of the office entirely

The first battle of the revolution is being fought to get control of a 10-inch territory: iPad screens.

Infovisa, for example, is redesigning its Maui system to work on touchscreen tablets as well as desktop computers.

So is Citi, and other vendors like SunGard are actively building mobile device support into client-facing applications that talk to their core back office systems.

Part of this is a response to demand from advisors in love with their tablets and looking for ways to integrate them into their jobs, says Jennifer Valdez, who runs SunGard’s wealth management product line.

But getting advisors out from behind their desks and in front of clients is rapidly becoming a competitive necessity for firms looking to squeeze more face time out of their star relationship managers, Mike Dinges says.

“Community banks and other institutions are really waking up to the fact that their relationships are their key resource,” he explains.

“Putting the account statement on a portable device like the iPad makes it possible to have more meetings outside the traditional office setting. If the market shifts, you can just call your client and update him or her over coffee.”

Dinges admits that it’s harder than you might expect to think in tablet terms like “pinches” and “gestures” instead of mouse moves, but he expects the results to blow people away.

“We don’t do vapor products,” he says. “This will be real.”

Convergent systems for convergent shops

While the revolutionary developments are in the lab, trust software vendors are busy enough just answering the phone.

“In my 30 years in this business, I’ve never seen a time when people were so willing to evaluate new software,” says Ray Unger, head of AccuTech Systems.

“They’re getting squeezed on their margins and in some cases are having to find a way to meet new regulatory requirements,” he explains.

It isn’t just the traditional trust banks that are in play here.

Independent trust companies, advisory firms, wealth managers and family offices are flirting with software that was once designed exclusively for banks.

What intrigues these non-traditional customers is the way these platforms have evolved from bare-bones custody systems to support all the aspects of the wealth management process.

When we surveyed the scene a few months ago, these systems were already moving toward the front office to give trust providers a single-screen solution to just about everything.

Now, a typical “accounting” platform supports a full range of securities and mutual fund transaction support and processing, systemwide balancing, custody and asset safekeeping, client reporting and portfolio management.

“What we’re seeing is true convergence of technology,” says Jeff Bloedorn, who heads up trust and wealth management business development for FIS.

“That’s feeding a convergence in the types of institutions we see becoming interested in this software,” he explains.

“Small investors are growing up and demanding more trust capability while larger institutional guys are realizing they have personal advisory needs.”

Growing too fast?

The sheer volume of interest in this technology may be becoming a problem for vendors that pride themselves on their customer service.

One trust company that recently switched to AccuTrust’s platform tells us they probably wouldn’t have made the move from HWA’s TrustNet if they knew customer service would be so slow.

“We are still having issues,” the principals say. “It takes months to get responses.”

When I asked Ray Unger about it, he was horrified.

“I don’t want our growth to be an excuse, but it is part of the explanation,” he says.

“We have our customers to answer to, and our goal is to make sure that over the long haul everyone we have a relationship with is satisfied.”

Family offices come into their own

Meanwhile, the big vendors keep making incremental changes to keep up with what their rivals are doing.

For example, FIS recently gave TrustDesk users the power to create “shadow” accounts for their clients’ assets held elsewhere — a version of the “unified household account” approach that giants like Citi and Sungard offer.

Multi-currency support is another hot differentiator, with platforms like TrustPortal and Innovest’s InnoTrust winning high marks.

Family offices and foundations are especially interested in buying into “trust” systems because they need the ability to administer the distributions as well as track the investments — and they rarely have legacy systems in place to rip out and replace.

“Attorneys and CPAs are doing more family office business and need the ability to automate their activities as the number of accounts grows,” says Rich McCabe at Delta Data.

Platforms like Delta’s Trust Accountant and HWI’s Trust Processor give these non-traditional customers a low-cost way to manage relatively small books of business and, ideally, scale up.

Scott Martin, senior editor, The Trust Advisor Blog. Steve Maimes contributed to the research.

Permalink: http://thetrustadvisor.com/news/software

Exclusive

CEO says new funds can be started in minutes, not months, at a fraction of the cost of a mutual fund.

Earlier this month The Trust Advisor reported Westwood Holdings Group, Inc. (NYSE:  WHG), through its trust company unit Westwood Trust, helped forge gains by landing large new accounts while other firms sat on the sidelines. Westwood managed to bring in $2 billion in new assets during the toughest year in recent financial memory.

As part two of our report on Westwood Trust, I had an opportunity to chat once again with Brian Casey, President and CEO of Westwood, to drill down into the topic of interest to most wealth advisors – common trust funds.

New Money from an Old Idea

Simply stated, common trust funds or “CTFs” permit the commingling or pooling of investors’ money into one account (known as a common fund) for the purpose of creating a single investment. In other words, they are much like a mutual fund. They actually pre-date mutual funds so they are an old concept. Since they are a bank product, CTFs are not required to be registered with the Securities and Exchange Commission and they are not considered to be a security under state and federal securities laws. They are regulated under OCC Regulation 9 (12 CFR 9.18) and are supervised by state or federal bank regulators.

Casey says there are two types of CTFs. The first are common trust funds or CTFs, a product of a bank or trust company established as a convenience to the trust client. The second are collective investment funds or CIFs. These are utilized primarily by large qualified plan sponsors who are seeking institutional pricing for a large pool of retirement assets such as 401ks.  They strike an NAV daily and trade on Fundserve.   Casey adds, “We actually have one of these that we developed for a Fortune 100 company 401k plan and the data is available in Morningstar.”

But Westwood’s power products are the CTFs, common trust funds. They are private and only available to clients of Westwood Trust. Casey says that “they are only available to our clients who have a bona fide personal trust relationship with the trust company.” Their minimum account size is $2 million which can be either a taxable or retirement account. But, in other words, to benefit “you have to be a trust client and have seven figures with us to be part of the club.”

According to the Westwood’s 10K quarterly report for the year ending September 30, 2009, $1.4 billion of its $9.5 billion or 15% of its assets under management are held in common trust fund relationships.

The Strategies

Westwood runs 31 separate common trust funds which are based on 15 asset classes. Casey adds, “With institutional quality and thoughtful asset allocation, the client is given a better shot of achieving what it is that they’re trying to do than picking a mutual fund off a list.”

To the client, “expenses matter.” With a CTF the only charge is a management fee.  There is no legal, accounting,  transfer agent or fund supermarket fees that are normally part of a mutual fund fee structure.

Westwood offers five different “flavors” of value. This includes small-cap, all-cap, large-cap , mid‑cap and smid-cap value. As for income, they offer five types of income products including investment grade bonds, REITs, High Yield and two unique income funds.

They have an esoteric type of fund called the Income Opportunity Fund. This allows them to participate in a company through different parts of its capital structure. This might include, for example, a high dividend paying common stock, a preferred stock, or part of a company’s debt in the form of a bond. Or, they might own royalty trusts or MLPs.

They just started a popular Global Diversification Fund CTF. The strategy on this vehicle is to focus on investor purchasing power protection. Casey remarks, “As U.S. citizens, we have a lot of obstacles that could diminish the purchasing power of our savings, like inflation or the potential decline of the U.S. dollar.” This fund might hold global TIPs or treasury inflation protected securities, global bonds, gold, and other types of commodities.

While Westwood manages all of the domestic value and income funds, Westwood employs outside subadvisors chosen by Westwood’s investment committee with assistance from an outside consulting firm. To manage the domestic growth funds, Westwood uses William Blair in Chicago as their subadvisor.

For International Value, Westwood uses Lazard based in London and for International Growth, Westwood employs Martin Currie based in Scotland. The fees paid to subadvisors come out of Westwood’s pocket as opposed to any additional fee to the client.  Casey says, “Asset allocation is critical to long-term investment success.”

Westwood is a world-class investor in the value and income space, but we recognize that investors need access to both domestic and international strategies to complete their asset allocation plan.  We have a talented consultant on retainer and an experienced investment committee to help us identify best in class subadvisors.”

Technical Items

A major part of hosting a selection of common trust funds servicing close to $1.5 billion is the technology platform. The two major factors that must be considered for any common trust fund trust accounting systems are (1) to keep track of each investors holding and (2) to be able to strike a daily NAV calculation for each fund.

Westwood uses a trust accounting system called Infovisa. Casey said they have been working with Infovisa for over 10 years and they deliver a “great system.” He remarked that the folks that started Infovisa came out of SunGard.

SunGard offers two trust accounting systems to support CTF processing. The two systems are: Charlotte, which is utilized primarily by firms with zero to US$2 billion in trust assets. Customers include smaller community banks and private trust companies as well as startup firms. The other is AddVantage, which is typically used by large regional and national banks, with no theoretical size maximum in terms of assets, transactions, or users.

Each of the systems has been designed to work in conjunction with SunGard’s wealth management platform solution, Wealth Station. The trust platforms are also able to utilize the trade execution and compliance tools of the SunGard Transaction Network (STN).

Advent also offers a common trust fund system. It is actually a mutual fund system, but may be used to keep track of CTFs.

Taking  Action

Common trust fund arrangements offer clients lower fees than mutual funds. That together with the enormous flexibility to create a pooled investment vehicle in minutes means that CTFs are likely to become an important part of the investment landscape.

The ease with which a trust company can be established in South Dakota, Nevada or Delaware by investment managers, has made inroads to this field, establishing a kind of “turnkey” service, which allows investment managers and plan administrators to easily establish new common trust funds arrangements.

Jerry Cooper, senior editor, The Trust Advisor Blog. Steven Maimes contributed to the research.