Free Site Registration

2008 Buyers Guide & Resource Directory

Looking Ahead |  Transatlantic Exchanges, Brokers Put Their Money on European Options Growth |  Research Technology Ready to Enter a 'Breakout Year' |  Next-Generation SMAs In Search of Next-Generation Solutions |  E-Mail Archiving Growth Fueled by Federal Rule Changes | 

Next-Generation SMAs In Search of Next-Generation Solutions

December 17, 2007
By Chris Kentouris

PFPC Worldwide's AdvisorPort unit, which offers overlay management for bank and brokerage sponsors, uses a proprietary data hub as well as software from CheckFree for rebalancing. "We run a daily filter for dispersion and will rebalance the account based on whether it is a tax-managed or non-tax-managed account," said Jeremy Molish, director of trading for AdvisorPort. "The rebalancing does not take place randomly but depends on tax requirements, cash balances and trading thresholds. That means that we can deviate from the model of the sleeve manager."

Though interactions among overlay managers, sleeve managers and sponsors are often automated, proprietary communications standards open the process up to errors. "Most of the errors occur on the account management opening process rather than between the overlay manager and the sleeve managers," asserted Len Reinhart, managing director of managed account solutions for Bank of New York Mellon Corp.'s Pershing subsidiary. "When we receive information from financial advisers on their clients we are able to electronically match up the risk portfolio of the client with the investment style selected. If there is a mismatch, we immediately notify the financial adviser."

An industrywide committee led by the Money Management Institute (MMI), which includes Depository Trust & Clearing Corp. (DTCC) and leading sponsors, has created standardized messages for a new DTCC SMA service that will act as a centralized hub for plan sponsors and fund managers. Officials at DTCC would not say when the hub will be available but noted that account opening and maintenance messages are being pilot-tested by Citi's Smith Barney and Global Transaction Services units.

The MMI is also creating a subcommittee to standardize the flow of data between sleeve managers and overlay managers. While overlay managers and sleeve managers typically communicate electronically, they do so via e-mail and spreadsheets based on formats set by the overlay manager. Such a process requires due diligence on the part of both parties. If PFPC doesn't hear from its sleeve managers within a certain period, "we proactively reach out and contact them to see if the e-mail has been missed," said Molish.

For active overlay managers, communicating trade instructions is also critical. After figuring out how much it should buy of each security, Placemark sends customized file formats to FIX Flyer's online service for trading and allocation management, ultimately reducing the trader's workload.

Household Accounts

Unified managed household (UMH) accounts could take the UMA concept one step further by focusing on a client's total assets across multiple financial services firms, but there are obstacles to overcome before UMHs catch on. Overlay managers would need to receive detailed, accurate and timely information from, in some cases, several custodians and wealth management firms.

"Custodians have been distributing data to wealth managers that own the client account, but they would need to change their systems and implement additional authorization processes in order to allow the data to flow to other wealth managers as well," said Alois Pirker, a senior analyst with Aite Group. "There is currently little incentive for custodians to do that."

For wealth managers, implementing a UMH strategy is made problematic by the number of products they need to meet adviser demands--retirement planning, proposal generation and portfolio construction tools. Because the systems do not interface with each other, financial advisers have to rekey information several times when advising a single client. To obtain a holistic, up-to-date view of all a client's products, advisers would have to query several systems.

So far, according to Pirker, no single platform is able to service the spectrum of UMH requirements, but SunGard's WealthStation comes closest. The application makes use of a host of SunGard solutions for financial planning, portfolio construction and trust-accounting and, by integrating with Smartleaf's Portfolio Manager, provides overlay management capabilities. Vestmark recently introduced a module for household-level portfolio construction, analysis and performance measurement, now in production at Robert W. Baird & Co.

"As with all platform projects, the difficult part of the UMH implementation project will be to assemble all necessary solutions into one seamlessly integrated platform--a problem with which many wealth management firms are very familiar," said Pirker.