The Benefits of Portfolio Optimization

In the last five years, portfolio managers have seen promising advances in optimization technology. These solutions utilize tools and automated processing to assist managers in determining the optimal combination of trades for an account. This approach eliminates the need to spend extensive man hours in an effort to determine the appropriate orders.

As money managers get more comfortable with optimization technology, they will continually move toward automated processing, and away from the current environment that dominates the portfolio management process. By leveraging optimization solutions,managers could see a reduction in errors associated with trade order generation and portfolio management, while simultaneously making net results more profitable for their accounts, and ultimately, their clients.

Full Disclosure: Maintaining a Compliant Unified Managed Account Program

In an era of ever-increasing regulation and government oversight, firms are taking more time and effort to remain compliant and, consequently, expending more capital to do so. As the Securities and Exchange Commission begins to exert more authority over fee-based accounts, this trend is likely to continue for the foreseeable future. Most large financial services companies have compliance teams working in various departments whose roles are to take an independent stance to ensure that the company is following all the necessary rules and regulations. The same is true within the world of the unified managed account (UMA). However, as this sector of fee-based business is relatively young, many new procedures have to be determined and then put into place to ensure conformity to security laws. As a result of the added complexity of these accounts, this work can be challenging.

Buy Low, Sell High: Managing Performance in the UMA World

The performance measurement aspect of a unified managed account (UMA) can become perplexing and labor intensive to manage due to the improvement of other product aspects, such as single registration and trade netting; however, it is an essential component of a UMA and, therefore, must be handled properly.

Advisors and managers should expect to spend some time reconciling, verifying data, and ensuring client expectations are correct. Focusing on these items ensures advisors and managers are in the best position to know what red flags to look for in order to easily and simply make necessary adjustments

Go with the Flow: Managing Cash in the UMA World

When administering a unified managed account (UMA) program, the most difficult areas to manage are the ones that are unique to a UMA. Many areas of UMA management are managed similarly to single-style separately managed accounts (SMA). However, there are some processes that have nuances which make managing them slightly different than managing SMA accounts. Areas such as account opening, maintenance, trading and reconciliation in a UMA differ from those in single-style accounts. Processes in these areas can usually be adapted fairly easily to address the differences, and when launching a new UMA while running an existing SMA platform, these processes can be gradually altered as the UMA account base is built up.

Some firms naively launch a UMA without thinking about the areas that are unique to UMAs and do not exist in the SMA world. It is these areas that give firms trouble almost immediately. If not dealt with quickly, these operational areas can cause problems that can escalate as a program grows.

To Outsource or Insource: Selecting an Overlay Management Option

CheckFree Investments Services is pleased to announce the availability of part two of a five-part UMA best practices series, “To Outsource or Insource:  Selecting an Overlay Management Option.”  The paper shares our experiences and insight on how to approach overlay management, specifically how to approach:

• Running a UMA Account Reconciliation
• Fiduciary Responsibility
• Existing Manager Relationships
• Managing Administrative Concerns Over Data
• Structuring a UMA
• Profitability
• New Entrants Offering a UMA

Get With The Program – Designing A Successful UMA Program

Many firms that have not already launched a Unified Managed Account (UMA) program may be seriously considering one. It is easy to see why – UMAs offer many great features that appeal to both investor and sponsor, such as a single fee to the investor, the capability to manage tax implications across multiple styles easily, the ability to change asset allocations and managers quickly without having to close an account and consolidated performance reporting.

The UMA evolved from Multiple Strategy Portfolios (MSP), which started to build upon the Separately Managed Account (SMA) concept. The MSP eliminated the need to compartmentalize a portfolio and produce different sets of paperwork. The UMA enhanced that concept by allowing for the bundling of additional investments into the portfolio to provide for a holistic approach. The UMA provides single views and streamlined management of disparate styles, reduces portfolio-management costs and improves efficiency.

This first paper from CheckFree's new series of best practices—designed for new participants to the UMA, or industry participants who may be considering changes to an existing program—provides a high level overview of the necessary requirements for designing a successful UMA program.

Shadow Accounting: A Practical Path to GIPS® Compliance

The CFA Institute’s Global Investment Performance Standards (GIPS^®) is quickly becoming the gold standard for performance measurement in separately managed accounts. GIPS provides best practices for quantifying and presenting performance data that is both accurate and reliable.

Since many asset management firms manage both retail separate accounts in addition to institutional assets, they are now addressing the decision to become GIPS compliant in their SMA practice. In order for Separately Managed Account (SMA) Asset Managers to claim compliance, they must have discretionary management responsibility for the SMA portfolios that they manage on behalf of the sponsor. They must also have access to the portfolio accounting data for the accounts. If the sponsor provides the portfolio information, the asset manager must still take measures to ensure that the data from the sponsor meets the standard. And to take it a step further, in order to claim ‘firm wide’ GIPS compliance; a firm must have autonomy over the assets as well as the investment management process on both the Institutional side of the business as well as the SMA side.

This Executive Briefing Series publication, produced by CheckFree, provides an insight into the key elements and benefits of GIPS compliance and the practice of "shadow accounting".

Unified Managed Households: Evolving the Managed Accounts Industry

The future evolution of the Unified Managed Account (UMA) is the Unified Managed Household (UMH). The UMH will further revolutionize portfolio management by enabling a single account to span across financial institutions, across a family or household, as well as include an investor’s assets held outside an institution, such as real estate or collectibles. The UMH is considered the highest level of managed-account integration and is the aggregation of multiple accounts with multiple registrations across multiple financial organizations – allowing for coordinated professional management within and across accounts.

This Executive Briefing Series publication, produced by CheckFree, provides an insight into the UMH and analyzes the hurdles that must be overcome to make this type of platform possible.

Multiple Strategy Portfolios – The Evolution of SMAs

Multiple Strategy Portfolios (MSPs), also known as Multiple Discipline Accounts or Multiple Managed Accounts, have continued to gain popularity as they have evolved into the latest generation of separately managed accounts (SMAs).  Multiple Strategy Portfolios – The Evolution of SMAs takes you through the progression of MSP development and their advantages to both financial professionals and clients.

Outsourcing Trends in the SMA Industry

SMA Outsourcing Picking Up Steam

After a relatively dormant period, managers outsourcing their separately managed account operations has once again become a hot topic. Since the start of the year, eight new outsourcing partnerships have been announced, nearly doubling the number of deals in the industry. The current spotlight examines the trends behind these deals and looks to the future of outsourcing in the separately managed account industry.

Managers Need New Approaches to RIA Channel

 Independent advisors are increasingly fulfilling the role of gatekeeper to the assets of ultra high-net-worth investors. The fast growing registered investment advisor (RIA) channel has influence over trillions of investment dollars.  Asset managers who want to makes inroads into that market must adjust their distribution strategies beyond traditional wholesaling paradigms, according to Thomas Coyle, editor of the Family Wealth Report. In this current SMAForum Insight piece, Coyle examines the unique demands of RIAs and discusses how investment managers can adjust their approach to tap into this source of wealth.

Managed Account Platforms

In an effort to reduce time to market with new separately managed account programs, more and more firms are choosing to outsource operations through third party platforms, according to a new report released by TowerGroup.  Entitled "Managed Account Platforms: Scrambling to Keep Pace in the Managed Money Race," the report examines the expected rate of growth for the separately managed account industry, analyzes the evolution of the outsourcing market and reviews the vendors that offer managed account capabilities. The report also discusses the challenges these vendors face in the current marketplace as well as those they will face in the future.

Recently, SMAForum had the opportunity to talk to Matt Schott, senior analyst in the Retail Brokerage & Investing research practice at TowerGroup and author of the report, about outsourcing trends in the separately managed account marketplace.