Last week, VIPs from the unified managed accounts industry met in Boston to announce new product offerings and a shift in direction when it comes to advisor support.

The Trust Advisor was there to talk to some of the most influential leaders in this area.

“Keep it simple” was the rallying cry for the managed account industry as platform providers finally see their efforts to liberate model-only investing from a once-impenetrable maze of jargon start paying off.

“From the beginning, this was about streamlining the way everyone in the industry interacts with household assets,” says Jonathan Flitt, a product manager responsible for Citi Investor Services’ OpenWealth unified managed account platform.

“It was always about eliminating layers of complexity separating the advisor from the end user, the investor. The problem was that there were too many competing definitions getting in the way of that very simple proposition.”

In fact even at a recent conference on unified managed accounts, I heard UMA defined about a dozen separate ways — in the same panel, no less — and that was from the providers themselves.

But as more big players like Citi get serious about the UMA approach and a galaxy of specialized vendors refine their technology, those definitions are converging.

The proposition in a nutshell

What gets those vendors most excited is how UMAs give advisors access to the best investment ideas out there in the form of third-party portfolio models.

That’s truly open architecture that works no matter what asset classes or product types the outside managers use.

And because the advisor retains at least veto power over the security selection, he or she stays at the center of things in the eyes of clients.

“Clients can be assured that the person managing their wealth is the person sitting across the table from them,” notes Jerry Michael, head of UMA provider Smartleaf, which now has well over $50 billion on its platform.

Boiled down to those terms, the value proposition cuts right through advisor fears about being just another of those middlemen who get “disintermediated” by a new technology.

That in itself might be one reason independent broker-dealer LPL bought UMA vendor Concord earlier this year.

If anything, the most advanced UMA platforms let advisors do things that would have been impractical or extremely expensive at best.

For example, Kelly Coughlin, head of GlobalBridge, is personally most excited about the opportunities his technology creates to fold alternative asset classes — everything from commodities to life settlements — into existing portfolios.

“Especially in this kind of environment, the chance to generate higher alpha is an obvious selling point, but it has to be done intelligently,” he says.

“The UMA structure acknowledges that none of the underlying models operates in a vacuum, letting the advisor automate basic tasks like rebalancing in a risk- and tax-sensitive way.”

Coughlin’s GlobalBridge invested in technology upgrades that allow advisors and banks alike to do a better job when it comes to making certain a portfolio is properly diversified.

Next month, he and his team will offer webinars to help them understand how to better manage volatility risk in this market.

Competing harder for advisor attention

The investment architecture stays open, but if anything, the advisor as relationship manager becomes more important than ever as the gatekeeper of client portfolios.

This is driving third-party managers and the platform providers to shed their introverted role and reach out to street-level advisors in order to stand out in a theoretically infinite shelf.

In effect, these vendors are now moving into the role that mutual fund companies, SMA sponsors and other product distributors played a generation ago: giving out marketing and educational support to win a bigger share of advisor attention and, if all goes well, the asset allocations.

As adoption of UMAs approaches critical mass, just having the ability to explain to advisors how to make their business more efficient is a big differentiator, says Patrick Newcomb, who’s taken over Cerulli’s highly regarded managed account consulting practice.

“Any value add that a vendor can add really helps the advisor ultimately achieve their biggest goal, which is to grow their book of business,” he says.

As a result, previously low-profile UMA providers are scrambling to beef up their marketing profiles to get their piece of what was already a $125 billion pie at the end of last year.

Global technology giant Fiserv has made its gigantic UMA platform — which has already attracted big clients like USAA — into a centerpiece of its new client outreach efforts.

And they’re coming out of the back office to watch how clients use their technology, says Dianne Morin, who heads up the Fiserv marketing team.

“We’re doing a lot more thinking about the institutions we work with and their clients,” she explains.

“They’re having a rough year and we’re stepping up with advice and consultation to support them.”

The last big thing for the industry?

Compared to last year, there’s even a revolutionary excitement in the air at Fiserv and just about everyone else I talked to in the UMA world.

Mike Cifrese, one of the area experts that Fiserv taps to help teach clients how to get the most out of their UMA programs, admits that there was once a false perception that this approach to investing was too complicated to implement, much less run.

But now, he says, everyone from the money center banks to independent advisory shops is coming around to the idea that, as he puts it, “efficiency will be increased as the silos are taken away.”

And across the industry, vendors are swamped with cold calls from institutions who are finally hearing about overlay management as a way to streamline their business.

“Conversations start at the highest level of these organizations and drive down,” says John Yackel, senior vice president of business development and distribution for Prudential Wealth Management Solutions.

“UMA and overlay management still mean a lot of things to a lot of people, but there’s clearly a large appetite out there and it’s reaching critical mass.”

How loudly are those phones ringing? Andrew Clipper, director of Citi’s OpenWealth platform, tells me asset growth is tracking at 3,500% a year right now.

With that kind of groundswell on the table, adopting at least some components of the UMA approach may soon become less of a differentiating edge for wealth managers and more of a competitive necessity.

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

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In just the last few years, cutting-edge wealth managers have embraced the use of third-party investment models as the key to efficiency and scale — and now the industry is taking notice.

“We went through a lot of trial and tribulation with people trying to understand what model-only management was all about, but it’s certainly becoming the standard now,” says David Gardner, an external project director of Depository Trust Company, DTCC Wealth Management Services.

Unlike traditional managed accounts, a model-only approach imports the best asset allocation and securities selection ideas from outside managers, without actually handing over custody of the underlying assets.

Because the advisor is the one who actually conducts the trades, this structure lets him or her override the models in order to fine-tune each portfolio to its owner’s outside holdings, tax planning needs and other client-specific considerations.

And because the assets never leave, the advisor can protect clients from Madoff-style fraud, while maintaining flexibility to switch allocations from model to model on the fly to keep up with market developments.

Put it all together, and it’s no wonder these account structures are headlining this year’s all-star Managed Accounts UMA Summit in Boston, Gardner says.

“This is evidently the fastest-growing segment in the industry and will set the itinerary for the next decade,” he says.

Big names talking UMAs

Buzz around model-only accounts is all over the agenda for the two-day summit, which kicks off on September 12 at Boston’s Harvard Club.

While plenty of panels tackle operational issues — social media policy, regulatory updates, breakaway brokers — 90% of the sessions focus on drilling down into exactly how advisors are integrating UMAs into their practices.

And the people laying out the facts are real experts drawn from all corners of the industry. Trust Advisor readers may recognize Jeffrey Strange from Cerulli, Jonathan Flitt from Citi and Alois Pirker from the Aite Group.

All the U.S. wirehouses are sending their managed account gurus, as are a fistful of leading independent shops like  LPL, which made headlines a few months back by buying its own UMA vendor to roll out these products to its 12,000 advisors.

On the buy side, MFS, Franklin Templeton, PIMCO and others will be on hand to explain how they’re delivering their in-house investment expertise into these new channels.

Our publisher, Jerry Cooper has arranged for The Trust Advisor to participate as a media sponsor. As our representative, I (Scott Martin) will be there — free to say hello to our many fans.

Not just an SMA rerun

One of the things that makes the new breed of managed accounts exciting is that their developers learned from the failed potential of separately managed accounts, or SMAs, David Gardner says.

“We watched the industry start building SMAs 35 years ago, but that business peaked at about $800 billion in assets and 1.2 million accounts,” he explains.

“Compare that to something like mutual funds, which are a $12 billion business.”

Gardner’s convinced that SMAs hit a wall when it became obvious that they just couldn’t scale up to serve the real demand out there for more sophisticated portfolio-building tools.

Some of the best managers out there simply didn’t want to share their ideas with the world at large, fearing that the added AUM would dilute their strategies, brands or both.

And given the cost of building an all-new custody platform to hold the assets, there was a lot of wasteful duplication of effort out there.

As a result, at the peak of the SMA era, there were barely four key vendors in the space.

This time around, Gardner says, there’s plenty of room for a truly infinite number of vendors feeding their models into the UMA universe — not to mention the advisors who will ultimately be picking and choosing which ones to overlay on their clients’ accounts.

“The advantage here is that it re-intermediates the investment intermediary by restoring the advisor to the central role,” he notes. “It’s the advisor who selects the model and adjusts it as necessary to better serve the client, and the clients appreciate that.”

In fact, Gardner says that about 90% of the people in the industry are either moving toward UMA management or budgeting toward developing a UMA solution sometime in the next three years.

SMAs are not necessarily going away, but one of the secret weapons of the unified approach is that it lets accounts hold an unlimited number of “sleeves,” each of which contains securities in a separate asset class or combination of asset classes.

A given UMA can easily invest part of its assets in one or more SMA products, mutual funds, ETFs, individual bonds, hedge funds, private equity, real estate or just about anything else out there.

In some ways, it’s the ultimate platform because it combines everything that came before, Gardner says.

“This is the first major platform change in the last 3-1/2 decades,” he sums up. “It is literally transforming the way we deliver investment advice and is going to be the topic for the next decade.

Scott Martin, senior editor, The Trust Advisor Blog.

To register with Trust Advisor Blog (B-791) discount: http://www.frallc.com/conference.aspx?ccode=b791

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

According to a new poll by Gallup released last week, 36 percent of Americans now say they have “very little” or “no” confidence in U.S. banks, the highest percentage on record since Gallup first started tracking that data.

Safe to say it’s been a tough year in the banks’ public relations departments. The nation’s five largest mortgage firms — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — have been the focus of a federal investigation into whether they defrauded taxpayers in their handling of foreclosures.

All of this coupled with market turmoil are good reasons for UMAs (unified managed accounts) to restore image and help clients properly diversify, rebalance portfolios and soothe nerves.

Investors scarred by one of the worst decades in market history are still finding plenty of reasons to be a little edgy, and they’re leaning harder than ever on their advisors to ease their nerves.

“With all the risk on the table today — uprisings in the streets, midnight votes — all investors are nervous,” says Chris Davis, co-author of UMAs Made Simple and managing director at UMA provider GlobalBridge.

“And with live coverage on the news networks, you’ve got to have the tools available to inform your clients what their exposure is and why you’re making the trade tomorrow or not,” he adds.

Once-passive clients demand immediate answers

In fact, the industry gurus at PricewaterhouseCoopers recently polled wealth management CEOs and discovered that just about everybody’s clients are second-guessing their advisors more than ever.

As PwC puts it, the global financial crisis and Wall Street’s latest round of scandals changed the DNA of the rich, leaving even families that once were blissfully uninterested obsessing over performance and risk.

When the markets are humming along, these clients now covet exposure to every exotic investment strategy they read about in the Wall Street Journal.

And when things get scary, they demand to know immediately whether their trust is invested in whatever it is that’s crashing today — even if it’s buried in one of those alternative asset classes.

No wonder wealth managers are scrambling for a way to simultaneously incorporate a wider universe of investments into their clients’ portfolios and keep better track of every share of stock on a minute-to-minute basis.

That’s where the marriage of third-party investment ideas and unified managed account structures is shaping up as a game changer, says Jerry Michael, CEO of overlay management Smartleaf.

In an overlay system, security selection is outsourced to best-of-breed investors whose ideas are “overlaid” on the portfolio, but all assets remain held in house.

“Overlay management systems like Smartleaf enable wealth managers to respond with unprecedented speed to macro events,” Michael explains.

“They can implement asset allocation or security selection shifts across their entire book of business in one day.”

Chris Davis of GlobalBridge agrees that overlay management and UMA structures give advisors the tools they need to evaluate their clients’ exposure in an emergency and react accordingly.

“What we’ve found is that our managers do a fantastic job on the upside, but managing downside risk is more important,” he says. “The first rule of the markets is ‘don’t lose money.’”

Not optional in today’s environment

Even if your clients aren’t watch late-night CNBC and wondering how developments in Tokyo will play out in their heirs’ quality of life, 21st-century markets mandate that the advisors themselves have the ability to move fast when needed.

On a bad day, that means liquidating investments that suddenly deteriorate below the parameters set forth in the trust paperwork and are unlikely to ever recover.

And even on the days when the media get ahead of the fundamentals, you need to be able to see what’s at risk.

“If you are waiting for your month-end or heaven forbid, quarterly statement, I guess it becomes buy and hold at that point,” David says.

Volatility is also becoming a bigger personal concern for money managers.

A full 62% of all the professional investors Northern Trust talked to a few months ago say the markets are going to get even choppier in the near term.

And 36% say they’re more risk averse than they were last year.

In fact, between unrest in the Middle East, the recent oil spike and the prospect of deeper inflation ahead, Northern Trust says bearishness on the global economy has climbed to levels not seen since the 2008 credit crash.

Some wealth managers are raising their allocation to equities in order to keep their clients ahead of inflation.

Others are chasing commodities with the goal of diversifying client portfolios away from what they see as a lackluster stock market.

Meanwhile, there are a lot of managers out there just trying to maintain course and add value for their clients over the long haul.

That kind of difference of opinion in the markets is exactly what drives volatility and creates winners and losers, but here too, unified account structures give the firms that use them a long- and short-term edge.

In the short term, UMA management provides both speed and the ability to manage risk across increasingly sophisticated portfolios of foreign stocks and debt, real estate and everything else out there.

And in the long haul, the fact that these account structures allow advisors to be proactive — harvesting tax losses on the fly, for example — as well as reactive should never be underestimated.

“This may be the single most valuable element of overlay,” says Jerry Michael of Smartleaf.

“It enables firms to ensure that every investment portfolio incorporates the best thinking, without sacrificing high levels of customization and tax management,” he sums up.  “For our clients, this becomes a core competitive message.”

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

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

This may be the year of the UMA as wealth managers embrace a high-tech approach that was considered too esoteric and complicated even a few months ago.

Back in August, we reported that unified managed accounts were not getting traction with advisors who considered these programs poorly documented and supported.

At the time, 80% of the advisors out there had no plan to integrate UMAs into their business.

But since then, several top-tier providers have gotten into the UMA space or deepened existing programs to make them more immediately useful to outside wealth managers.

Just this weekend, we saw UMA provider GlobalBridge launch an aggressive marketing program to advisors — mere days after Citigroup widened its UMA platform to support trust services, operations outsourcing and custody.

Throw in big moves over the last few months from Fidelity and TD Ameritrade on the RIA custodian side, and there seems to be a gold rush into UMAs building here.

Widening the space on both ends

As usual in the UMA world, a lot hinges on the definitions.

At the core, a unified managed account is simply an accounting solution that enables advisors to build a client portfolio out of securities from multiple asset classes and hold them on the same platform.

But more sophisticated UMA systems provide a menu of third-party investment ideas that advisors can then “overlay” on their client accounts.

The goal is to give clients access to the best investment ideas out there while letting their advisors stop spending a fortune to match the trades the best talent on Wall Street can come up with.

This is the flavor of UMA that Citi’s Global Transaction Services team says now makes the difference between a competitive trust industry and extinction.

“If technology was previously considered more of a ‘nice to have,’ Citi asserts that truly integrated wealth management is simply impossible without a cutting edge wealth management technology,” the company recently stated.

In fact, Citi now integrates trust management and custody into its established UMA platform to let advisors monitor and manage their clients’ wealth across all household accounts: taxable and non-taxable, held in trust and otherwise.

After all, as the trust officers that Citi talked to ruefully point out, the clients themselves are already operating out of a unified household-level perspective and want to make sure their paid advisors can spot inefficiencies across accounts faster than they can.

Jonathan Flitt at Citi tells me that the newly enhanced UMA is an obvious fit for private bankers in particular, since they’re most likely to have ultra-high-wealth clients who’d benefit from this kind of all-inclusive approach.

Meanwhile, on the RIA side, the mere fact that UMAs — with or without overlay — are rolling out at all is noteworthy.

Fidelity, for example, seemed almost grudging back in January when it added UMAs as an option for its high-net-worth clientele, largely as a tax planning strategy.

But while innovation is good, it seemed like a missed opportunity to keep the job of creating these unified portfolios “in the family” in the form of captive RIA Strategic Advisers.

TD Ameritrade, on the other hand, has promised that it’s happy to add third-party managers to its UMA platform if enough advisors nominate a particular strategy for inclusion. This is a true open architecture solution, and one that has the potential to earn the UMA approach the spotlight it deserves.

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

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Trust companies and other financial service providers looking for a way to keep their clients happy and even cultivate new ones are finding it in the sweet spot between third-party portfolio management and high-tech account structures, says GlobalBridge CEO Kelly Coughlin.

“We firmly believe that this combination will, if used well, result in higher net profits,” he explains.

The problem is that until now, there was no concise guide out there to describe exactly what “overlay management” — the third-party investment strategies — and unified managed accounts (UMAs) do on their own, much less in combination.

We profiled Minneapolis-based GlobalBridge a few months ago. Since then, Coughlin’s team has been working overtime to develop a marketing platform that eliminates the jargon while spotlighting that sweet spot.

The first fruits of their labor debuted today at the ABA Wealth Management & Trust Conference in Miami Beach, where Coughlin and several other members of the GlobalBridge brain trust are staffing exhibitor booth 516.

“Unified Managed Accounts Made Simple” is unique in the industry for doing exactly what it sets out to do: describe what companies like GlobalBridge do and what the value is for banks, trust companies, broker-dealers and RIA firms that sign up. (Get a free copy HERE.)

Inside the Integrated UMA

A lot of firms are at the ABA conference showing off their overlay solutions. Even giants like Citi have entered the arena with new tweaks to their OpenWealth platform, which now integrates trust accounts into its overall view of each client family’s sometimes far-flung assets.

But to pare it all down to basics, overlay management is really a business process, Coughlin says.

Companies that join an overlay platform get access to best-of-breed wealth managers’ security selection and trading strategies — their “portfolio recipes” — and can then “overlay” or replicate the recipes in their own clients’ accounts.

These accounts are structured as UMAs. The back-office systems that give overlay managers the ability to monitor, adjust and support the UMAs are a technological solution, Coughlin says.

“A lot of providers offer some version of what they call ‘overlay management’ or a ‘unified managed account,’ but really lean one way or another,” he explains.

“The problem is that both categories have been thrown around so much that the terms have become practically meaningless.”

GlobalBridge cuts through the haze by branding its combined overlay UMA offering as the Integrated UMA.

It’s in the “integration” of the two that makes the GlobalBridge solution really interesting.

For one thing, the company’s UMA platform goes far beyond old-fashioned separately managed accounts in the sheer variety of asset classes and strategies it can handle.

And with the proprietary “three-dimensional” asset allocation model built into the platform, alternative assets are not only allowed but practically accepted as the 21st-century default — and truly integrated with conventional stocks and bonds to give advisors a real diversified portfolio, draw-down risk management, and dependable returns – thus the 3 D.

As a sample, GlobalBridge also culminated 10 years of work by unveiling five pre-optimized 3-D portfolio strategies today. These overlay portfolios — focusing on core, income, growth & income, global balanced and growth strategies — use the top managers on the platform and as the company points out, “back testing has generated extremely impressive results.”

Separating the wheat from the chaff

GlobalBridge also prides itself on the due diligence with which it vets every manager on the platform. This frees fiduciaries in particular from a lot of the cost of manager selection by ensuring that every name that comes up on the screen truly is “best of breed.”

The company extends that care to the financial firms it chooses to work with, Coughlin says.

Instead of chasing every bank or broker who comes calling, GlobalBridge performs thorough due diligence on would-be partners.

“If we identify there is a need and a match for our services, we pursue the relationship,” Coughlin explains. “Otherwise, if we can’t deliver what they need, we won’t waste their time..or ours.”

The courting process can take months because these relationships are more like marriages than short-term vendor partnerships.

“We want to build our business around clients that enjoy and have mutual respect with us, and each of us wants to make sure the other is getting value,” Coughlin says.

“If it’s a mutual thing, we all benefit and it’s going to be a very good long-term relationship. If it’s all about who can do it the cheapest, it may not be a good fit for anyone.

GlobalBridge has lined up a “backstage pass” tour of their platform — basically a VIP test drive — for those who want first-hand insight into the benefits of an Integrated UMA approach.

Less pain, more gain

Naturally, being able to tell a client that you have the best investors in the world pumping ideas into his or her portfolio is a huge competitive advantage.

Clients won’t be tempted to flee to the next hot manager setting up shop and it can even be a differentiating factor with which you can lure prospects.

As Coughlin notes, institutional and high-net-worth clients alike are already fleeing the wirehouses, so this is an opportunity.

Meanwhile, Coughlin mentioned it last time, but it bears repeating. Overlay management lets a financial institution outsource non-core functions — wealth management — to the experts, saving money and refocusing on core expertise.

Your in-house investment managers can focus on the value-added specialties your clients already appreciate, without having to stretch or buy their way into generic or crowded strategies.

And the trust officers themselves can get back to the job of managing relationships with grantors and beneficiaries, instead of trying to manage money.

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

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