Power Tools For Wealth Managers

Terry Flanagan

In the wealth management industry, every minute spent on record keeping and compliance tasks represents time taken away from the core functions of managing portfolios. As more advisors get involved with managed account programs, which give them more discretion over client investments, they need to maximize the efficiency of their operations, as when they are moving funds in and out of mutual funds.

“If you look at the last three to four years, obviously the equity market has made a tremendous move up,” said John Brett, managing director and head of managed investments at Pershing. “During that period of time, individual advisors have chosen, I think correctly so, to make much more decisions on a discretionary basis for their clients.”

A tool is necessary to be able to do that effectively. A tool meaning that as opposed to individually calling up clients individually who own a mutual fund, the advisor has discretionary ability to take all those accounts out of one position and enter another.

Since its launch in 2010, Pershing’s block trading and rebalancing tool has experienced significant growth, supporting over 5,000 advisors and over 1.1 million accounts, as of March 31, 2014. Its year-over-year growth can be attributed to the increasing demands of advisors who seek more fully integrated account management tools, as well as the market trending more toward the advisor-directed segment.

According to Cerulli Associates, assets held in open or dual contract managed account programs surpassed assets held in sub-advisory programs.

“In 2007, sub-advisory programs held nearly twice the assets of open separate account platforms,” said Scott Smith, director at Cerulli. “By year-end 2013, open programs exceeded assets in sub-advisory relationships by nearly $50 billion.”

The availability of mutual fund wrappers has dramatically reduced the account minimum needed to open separately managed accounts. “When the product was first introduced on Wall Street, it was primarily designed to allow retail investors to get exposure to institutional quality asset managers, so in those days the account minimum might be as much as $10 million,” said Brett. “The mutual fund account minimum wrap might be as little as $25,000.”

What Pershing and other service providers do is allow advisors to effectively manage a book of business, not unlike what a portfolio manager might be doing in a mutual fund.

“If you think about that premise, that means now they can spend more time on equity selection, debt selection, mutual fund selection, in and out of the positions as opposed to physically taking the man-hours required to just write the order,” said Brett. That’s time management, as well as effectiveness from a compliance point of view so they’re not back-tracking orders after the fact because something might have been done incorrectly.”

Featured image via Nomad Soul/Dollar Photo Club

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