Are You With The Right UMA Partner?

Unified Managed Accounts (UMAs) are sold with key list of advantages.  But if you don’t have the right underlying technology or managed account partner, you can’t seek to achieve all of these advantages and you may end up with some pretty tough challenges, and sometimes some pretty disappointed and frustrated clients, right?  So while it’s not exactly flashy to talk about true sleeve tax-lot accounting….it’s critical to delivering the client outcomes you really want to create for your clients.  

Most of these issues are due to a platform’s inability to tag and partition tax lots.  It takes time and experience to build a platform that handles – and partitions – a UMA properly. You can’t take shortcuts. Some people call it old school, we call it experience. And we think you deserve better. 

For more on this topic check out our blog, Understanding the Impact of Two Different Approaches to UMA

FOR PROFESSIONAL USE ONLY. Investing in securities is subject to inherent investments risks, including, the potential loss of principal. Adhesion Wealth does not provide personalized investment or tax advice. UMAs are not suitable for all investors and should be evaluated for suitability by their Financial Professional prior to investing. UMAs do have certain limitations that must be overcome, such as, the portfolio can’t be directly moved over unless a manager is in the same sleeve of the new firm’s UMA and would need to be held outside the UMA. 

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Adhesion Wealth Enhances Integrated Platform Tools, Further Strengthening Connections Between Advisors & Managers

CHARLOTTE, N.C., May 21, 2019 /PRNewswire/ — Adhesion Wealth™(Adhesion), a Vestmark company, continues to expand its innovative suite of tools to connect advisors and asset managers. The firm has recently completed the roll-out of Adhesion Manager Communities, an enhanced set of capabilities providing both registered investment advisors (RIAs) and asset managers with intuitive analytics, communication, and marketing capabilities to allow the two communities to foster stronger connections.

“Our unified platform is designed to help advisors and managers do what they do better and faster, in order to improve outcomes for themselves and the investors they serve,” said Barrett Ayers, President of Adhesion Wealth. “The latest updates to our platform can bring advisors and managers closer together—fostering actionable insights which make it easier to tailor and deliver sophisticated investment solutions.”

Adhesion Wealth’s Manager Communities dashboard provides RIAs with innovations for:

Managers of Interest: Adhesion Wealth provides advisors with a product comparison dashboard to help analyze and identify opportunities to utilize model portfolios in lieu of higher-cost products. Model portfolios often have lower all-in costs than many of their traditional packaged product counterparts. Advisors can utilize the dashboard to identify lower-cost opportunities that have similar investment objectives and attributes.

Communication: Advisors can communicate directly with managers or send blind requests for proposals (RFPs) expressing preferred model criteria to multiple managers through the Adhesion Wealth platform.

Due Diligence: The dashboard increases visibility for manager research, including the latest contributed media content, whitepapers, and marketing materials published in the Adhesion eXchange. The dashboard highlights news articles about managers and their products alongside Adhesion’s weekly manager spotlight webinar, which provides advisors with insight into a manager’s investing philosophy and tactics.

Adhesion Wealth has also introduced new features in its dashboard for managers to enable them to foster stronger connections with advisors and grow their businesses, such as:

Product Insight: Managers can utilize their Adhesion Wealth dashboard to track asset flow growth, wholesaler performance, and model trend data. Managers can also monitor advisor usage for each model and sleeve through proposals generated for both clients and prospects.

Marketing Intelligence: Adhesion Wealth provides click data for managers to understand which products and marketing materials have made the greatest impact. Weekly manager spotlight webinars offer managers the ability to present their investing philosophy and tactics to the Adhesion Wealth network.

Communication Portal: Managers are able to communicate and receive RFPs from Adhesion Wealth network firms and can respond directly through the Adhesion Wealth platform.

To learn more about the enhancements to the Adhesion Wealth platform, please visit: http://www.adhesionwealth.com/integrated-solution/index.shtml 

About Adhesion Wealth:

Adhesion Wealth™ enables advisors to easily provide separately managed account (SMA) and unified managed account (UMA) portfolios to investors. The Adhesion Wealth UMA/SMA chassis empowers advisors to bring highly-scalable, flexible, and customized wealth management solutions designed to enable them to deliver better investor outcomes.

Adhesion Wealth™ is a wholly-owned subsidiary of Vestmark, Inc. Vestmark enables financial institutions and advisors to efficiently manage and trade their clients’ portfolios through an innovative software as a service (SaaS) platform, VestmarkONE®. For more information, call (888) 295-8351 or visit www.adhesionwealth.com.

About Vestmark:

Vestmark enables financial institutions and advisors to efficiently manage and trade their clients’ portfolios through an innovative software as a service (SaaS) platform, VestmarkONE®. Financial institutions and advisors use Vestmark’s dynamic suite of portfolio and practice management tools and services to build customized solutions that meet their business needs and help to improve outcomes for clients.

Founded in 2001 and headquartered outside of Boston, Vestmark is a trusted partner to some of the largest and most respected players across the wealth management industry. More than $1.3 trillion in assets and 4 million accounts are currently managed on the VestmarkONE platform. For more information about Vestmark’s solutions, call (781) 224-3640, email inquiry@vestmark.com, or visit www.vestmark.com.

Media Inquiries:

JConnelly for Adhesion Wealth/Vestmark

Laura Simpson

(973) 850-7319

lsimpson@jconnelly.com

SOURCE Adhesion Wealth

Related Links

http://www.adhesionwealth.com/

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Price Is Only an Issue in the Absence of Value

Advisors have been pelted for decades with accusations of perceived high cost like, “You charge too much”, or “Why should I pay you a commission when I can get a no-load fund?”, or “Your fee is five times higher than a robo advisor charges.”  The hard, cold fact is that the all-in cost of making investments has come down, in steps, for the same period of time that high-cost accusations have been thrown and advisors are left to justify their professional fees.  Let me take you back a few years.

My first mutual fund trade as a new broker at Merrill Lynch in 1985 was for the American Capital Pace Fund.  Part of my presentation addressed the advantage of only paying a one-time commission of, wait for it, wait for it… 8.5%!!  That number is mind-blowing today but 34 years ago, it was the norm.  A few years later, most fund companies lowered their equity fund loads to 5.75%.  Brokers went nuts but gradually accepted 5.75% as the new norm.

The discussion those many years ago was based purely on cost and had nothing to do with value.  Slowly, as fee-based platforms entered our world, the discussion shifted to what an investor would receive for fees paid.  I remember a meeting I had in my days as a product wholesaler.  A twenty- something IBD rep with two years in the business was excited to show me his fee menu.  I have long forgotten the numbers but I will not forget the dismay I felt when I read his menu.  He offered three levels of service with more client interactions at each level.  Among other line items, financial plans were discounted and some hourly fees were waived at the highest level.  The only reply I could muster when he asked what I thought was, “What percentage of clients are choosing each level?”  He answered that almost everyone chose the lowest level of cost.  Like Communism, his menu worked perfectly in theory but was horrible in practice.  Why?  His menu lacked the single most powerful factor in any discussion about fees: THE PERCEPTION OF VALUE!

I know you have heard it before: Be valuable to your clients.  I also know that honestly connecting your value to the fees you charge is a blood pressure raising exercise.  Check out how Joe Duran, CEO of United Capital, so eloquently frames the discussion.  As I read the article, I was reminded of another IBD rep who perfectly figured out value vs. cost.  She was in a small midwestern city fifty miles from a metropolitan area.  When interviewed by an industry magazine after having reached production of $1MM in a year, she professed to not knowing what her paycheck would be when her commission payout was deposited.  I asked her how that could be, to which she replied that she never considered what she would be paid when recommending investments to her clients.  Her only focus was to put her clients in the best position to meet their goals.  Sometimes that meant she earned nothing but trust and respect.  In a town of that size, everyone knew her as trustworthy and respected.  Cost was not an issue because the perception of value was enormous.

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Model-based Separately Managed Accounts (SMAs) are an expression of financial evolution, a step forward from the legacy of mutual funds.

Advisors use tools and technology to help make investment decisions but ultimately must rely on their professional expertise to ensure that the tools are guiding them to the best financial decisions for their clients. Still, the tools that the advisor chooses play an essential role in the success of their clients and their business over the long term. One tool that is increasingly utilized in the investment management universe is the model portfolio-based SMA, which is delivered to the client via an overlay manager . An overlay manager is responsible for trading the model, managing tax exposure and other customizations for the specific client. Using an overlay manager opens some unique opportunities for an investor and represents a step forward as a new and powerful tool for advisors.

Customizable and tax-efficient , model-based SMAs are an advancement above the legacy of mutual funds. Removing the mutual fund wrapper allows a model’s strategy to be more applicable to a client’s unique tax situation, and likely offering cost savings. Essentially, a model-based SMA investors can reach into the model to pick and choose which tax-lot to sell – thereby optimizing the after-tax impact. Mutual fund holdings, on the other hand, ignore an investor’s unique tax profile and will generate capital gains distributions, even for long-term investors.

Coordinating multiple model-based SMAs in a single, cohesive account (such as a Unified Managed Account (UMA)) is the job of the overlay manager, who receives trading signals from model providers. This team of Overlay Manager + Model Provider helps support the advisor by executing the model provider’s strategies alongside individualized account-level client needs.

The advisor is the key here, as the advisor knows the client. The overlay manager and model provider are the outsourced solutions that help give the advisor the best chance to deliver on the client’s financial goals. To learn more, visit http://www.adhesionwealth.com/.

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Understanding the Impact of Two Different Approaches to UMA

Is your firm considering outsourcing your investment management process?  Confused about what a Unified Managed Account (UMA) is as well as the various approaches used to drive this account?  If so, this blog is a must-read. 

A UMA is a highly versatile account that can hold multiple asset managers across a variety of security types.  It allows for mass personalization without sacrificing scale all while delivering the solution at meaningfully lower all-in costs than other programs. And most exciting is that it is an advanced form of outsourcing, so the operational and management burden is all wrapped into an “overlay fee”.

 In order to make the account run, a quarterback generally sits atop the program to coordinate all the activity, referred to as an Overlay Portfolio Manager – who oversees activity ranging from manager trades, cross manager rebalancing, security swaps within the portfolio to avoid excessive trading, cross manager tax management, tax harvesting, client restrictions, client personalization, cash management as well as a host of other day to day administrative tasks.

Adhesion has been in the business of offering our UMA program with overlay portfolio management for 12 years and have helped build and administer thousands of UMA programs for our clients.  Our platform is an open architecture program – which means that advisors have the freedom to ether build their own multi-manager allocations or use one of our pre-built portfolios that have been constructed by a 3rd Party Outsourced CIO (OCIO) or Investment Strategist. 

When evaluating a UMA Platform like Adhesion, it is important to ask detailed questions about approach and methodology because it will impact your client’s experience.

But to understand approach, let’s first define how managers and products co-exist in a UMA, because that’s really where an Overlay Manager earns their money.  It’s also what makes things really complicated and even a bit controversial.  Every security model within a UMA is called a ‘sleeve’.  If you were to put an equity SMA and a single mutual fund together in an account, that would be two sleeves.  Or if you combined three SMAs, two ETF strategists and 1 mutual fund – that is 6 sleeves.  Where the debate begins is how to keep those ‘sleeves’ segmented or ‘Partioned’.  The two methods to partition a UMA and the impact of the approach is really important as it will affect your client’s performance, taxes, fees paid, risk policy adherence, overall account dispersion as well as the reputation of both your practice and the managers firm.

Partitioned Sleeve Based.  A partitioned Sleeve Based Platform tracks individual tax lots to the manager that purchased those positions within the UMA.  We call it Tax Lot Tagging, and the tax lot lives forever with the manager. Each tax lot inside of an account must be explicitly tagged and associated to a manager’s model.  This means that if IBM is held by two managers, the method to assign them is based on the actual trade that was generated by the respective manager.   It allows us to explicitly compute taxes, performance, fees and gain/loss against the manager in which it was earned.   It ensures that when we trade a specific tax lot for the manager, we communicate ‘versus purchase’ instructions to the custodian so their books stay in synch with ours.   It is by far the most complicated method of overlay management.

Blended Sleeve Based.  Sometimes called a poor-man’s sleeve-based system, a blended methodology allows a platform to form a sleeve based on today’s holdings.  There is no tax lot tagging or sleeve-based account and thus there’s no historical record of where the tax lot came from.  This means what a sleeve looks like today is different than what it looked like yesterday. 

After spending much time researching the impact of these two approaches, an industry veteran once summed up the difference this way :

“…think of one of those big popcorn canisters you get during the holidays with the three segments for different flavors.  The segments are basically partitioned sleeves.  You can easily see how much caramel corn is left and how much has been eaten relative to the cheese popcorn.  Now take that divider out, shake the can and try to give your friend half of each flavor.  Now that’s what it’s like to manage a portfolio without partitioned sleeve”. 

To help visualize this issue, we have provided a real life demonstration below that illustrates the impact as well as a questionnaire that can be used to do your own due diligence

Partitioned Sleeve vs Blended Sleeves in Action

Consider the following scenario – Manager A and Manager B are equally weighted at 50% in a client portfolio.  In the first month, Manager A initiates a new purchase of $50,000 into ABCD.  From there, ABCD proceeded to grow a bit in the second month, then significantly in the final month  Manager B, evidently noticing the skyrocketing results of ABCD, wishes to window-dress their portfolio going into quarter end and initiates a brand new $40,000 position in the last month of the quarter as well.

SCENARIO I – PARTITIONED SLEEVE APPROACH:

Position Value in ABCD
Target Manager Allocation Month 1 Month 2 Month 3
Manager A 50% +$50,000 $52,000 $60,000
Manager B 50%  $             –    $             –   +$40,000
Total Portfolio 100%   $50,000 $52,000  $100,000

Manager A.  Over the quarter generated a $10,000 gain on the initial $50,000 investment or a 20% return ($10,000/$50,000).     

Manager A

Return                                            + 20.00%

Beginning Market Value                 $50,000

Ending Market Value                      $60,000     (Gain of $10,000)

Manager B.  Over that same period, had $0 gains and 0% return.

Manager B

Return                                            N/A

Beginning Market Value                 $40,000

Ending Market Value                      $40,000     (No Gain)

SCENARIO II  – BLENDED SLEEVE APPROACH:

Manager A Because in the third month Manager B initiates a position in ABCD as well, only 50% of the account’s total position is attributed to Manager A due to the target manager allocation of 50%.  The holding as a whole was up 11.11%, ($10,000 / $90,000)  however because Manager A  only owns 50% of the position are now attributed 50% of the return, or 5.56%

Manager A

Return                                            + 5.56%

Beginning Market Value                 $50,000   

Ending Market Value                      $50,000   (50% of Total Position’s Ending Market Value –  No Gain)

Manager B, Over that same period, were attributed a gain of $10,000

Manager B

Return                                           + 5.56%

Beginning Market Value                 $40,000

Ending Market Value                      $50,000 (50% of Total Position’s Ending Market Value –  $10,000 Gain)

With Scenario II, what may be obvious to those in the money management business is that the manager who took advantage of window-dressing ended up in a better position than the manager who took a risk.  Some have asked does this anomaly encourage managers to window-dress to split profits (and fees) ?

To the layperson, this seems highly confusing and counterintuitive.  Manager A did a fantastic job, added value, yet in a blended environment appeared flat.  Similarly, Manager B just initiated a position yet immediately is credited with a $10,000 gain.  Most investors would errantly suggest you fire Manager A and put more money with Manager B.

The average multi-manager equity portfolio at Adhesion Wealth has 17 positions that overlap.  Portfolios that include asset classes that are overlapping in nature (All Cap, SMID, Global Equity) have a significantly higher incidence of overlap. Imagine the impact above multiplied by 17x across 500 clients. The impact to both a reputational – and perhaps more importantly – a fee perspective – can be dramatic. 

Is your platform taking necessary precautions to avoid improper weighting and fee attribution?

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Why Congressionally-mandated FIFO accounting will adversely impact your clients – and what you can do about it.

This past Saturday morning, the Senate passed their version of the Tax Cuts and Jobs Act bill. One of the lesser known provisions in the Senate bill, was the elimination of an investor’s choice to identify which shares of securities they may wish to sell or donate. The provision states that the only way securities may be disposed of is through use of an accounting method commonly referred to as First-in First-Out (FIFO) where the oldest shares purchased are the first ones an investor may sell. Because of the protracted appreciation of the securities market, the first shares purchased are likely to be the lowest cost and therefore carry the most gain (and resulting tax penalty).

The House version did not include this particular provision. And because there exists so many differences between both versions of the bills, this past Monday, Congressional Republicans went to a Conference Committee to begin reconciliation efforts on the various differences between the two tax bills. Led by House Ways and Means Committee Chairman Kevin Brady, and Senate Finance Committee Chairman Orrin Hatch, there are a number of hot topics that will need to be negotiated – including individual tax rates, the handling of AMT, child tax credits, corporate tax rates and repeals to the Affordable Care Act.

Because of the number of big-ticket and high visibility items included in the bill coupled with the pace the legislation is advancing, some experts fear that the FIFO provision may be overlooked and ultimately absorbed into the reconciled bill as collateral damage to bigger-picture negotiations.

However, we at Adhesion believe that this would be shortsighted as the provision is damaging to the very investors and savers that it is purports to protect. The provision has virtually no impact on the $1.7 trillion funding gap the bill creates as it is currently scored at generating just $2.4 billion over 10 years. As inconsequential as those revenues may sound they don’t even consider the expense side of the equation – no official estimates exist thus far on the offsetting expense associated with infrastructure retrofit needed to operate, report, comply and monitor the changes thrust upon the industry. And it certainly does not consider expenses associated with policing and adjudication of these matters.

Interestingly, the Investment Company Institute, the powerful lobby representing the mutual funds and ETF industry, were granted an 11th hour carve-out reprieve in the Senate bill to allow mutual funds and ETFs to continue to sell specific tax lots within their pooled investment vehicles. It is important to note this carve-out exemption for institutional investors does not extend to those retail investors purchasing and selling these instruments, only how the fund itself accounts for the gains and losses within their portfolios.

We feel there are some other anti-competitive and unwarranted elements in this provision that members of Congress, investment advisors and end-investors should be gravely concerned about. Specifically –

  • When the Senate proposed a carve-out provision that protected the institutional fund companies and ETF providers while ignoring the retail investor class, they created an uneven playing field that is heavily tilted against retail investors. Through this provision, the institutional investor will be afforded a significant advantage as they may exit any tax lot they wish. With the freedom to select tax lots, the institutional investors can sell at will, whereas the retail consumer will be locked-up due to tax costs associated with their low-basis FIFO shares. This sort of unfair playing field is analogous to suggesting institutional investors can trade commission-free yet retail investors must always pay commission. The provision creates an enormously unfair and artificial trading barrier that will heavily disadvantage retail investors.
  • With this barrier in place, end-investors will likely open up different brokerage accounts or have paper certificates issued to them. In both cases, there is no reasonable method to enforce or monitor for this type of behavior. This will drive up operational costs for advisors and custodians which will ultimately be passed through to the end investors. And by exploiting this loophole, the revenue projections for this provision are likely to fall even shorter than expected.
  • By adding friction to the retail investor’s ability to liquidate securities through a FIFO provision, one should assume that there will be less selling – which leads to less liquidity and efficiency in our capital markets. This also means that retail investors will be less inclined to eliminate assets in an attempt to seek diversification. This will ultimately lead to concentrated and highly appreciated holdings in client portfolios which runs in stark contrast to tried and true investment principles of diversification, rebalancing and buy-low/sell high for retail investors. This introduces the potential of an enormous loss during a market correction as well as introducing excessive levels of portfolio risk – all while stifling the efficiency of the capital markets.
  • This provision disproportionally burdens older investors who likely have a more extensive tax history and on average maintain a lower cost basis than younger investors. This FIFO tax also represents an unplanned expense that retirees had not budgeted for – which will erode retirement savings at a time when retirees have very little time to recoup this new, unanticipated retirement gap.
  • This provision also disproportionally disadvantages middle- and upper-income investors who are more likely to hold FIFO-eligible securities. Contrast that with ultra-high net worth and institutional investors who frequently hold real estate, hedge funds and other sheltered ‘accredited investor’ assets, which can be exempted from FIFO provisions as a result of the Senate’s proposed carve-out clauses.
  • Lastly, if legislation is advanced, one unintended consequence facing mutual funds and ETF providers is that retail investors will likely seek to avoid concentrated positions so as to have more choice on which shares to dispose of. Mutual funds and ETFs are pooled investment vehicles, and as such, they are generally far more concentrated in a client portfolio than individual equities. We believe advisors and investors will wisely consider diversifying out of concentrated mutual fund and ETF holdings into a larger basket of diversified equities so as to have multiple tax lots to sell. So rather than purchase Coke multiple times, an investor may consider purchasing Coke, Pepsi, Dr. Pepsi and Constellation Brands. Security prices and equity valuations may no longer be dictated based on rational, sound fundamentals, but rather from a desire to exploit loopholes in heavy-handed government legislation.

For a bill that is intended to promote simplification and fairness, we think it does just the opposite. It unfairly penalizes the retail investor with a FIFO tax while introducing liquidity friction and complicated recordkeeping. At the same time, it rewards the large institutional and ultra-high net worth investors with flexibility to use their own preferred inventory accounting methods. Most would argue that if framed properly and viewed in its totality it would be difficult to defend.

So what can you do? We think this particular provision just needs a bit of sunlight so that it can be evaluated and debated in the open. With enough voices we think we can make this happen and we encourage you to get involved.

First off, encourage your clients to take action.  Consider directing them to TD Ameritrade’s Legislative Action Committee site, which has done a fantastic job of highlighting the issue.  From this site, they may contact their local representatives .

Next, as investment fiduciaries we would urge you to read the Money Management Institute’s position on the Senate version of the tax reform legislation.  On their site, the MMI chairman, Craig Pfeiffer shares talking points and a number of template letters you can use to contact your elected officials.  Similarly, the Investment Advisor Institute – an advocacy group for SEC-registered investment advisory firms has developed a site to contact elected officials and communicate your concerns of FIFO legislation.  Adhesion has also drafted an open letter to Congress which can be found here.  Feel free to use it or modify it and share it with your elected officials.

Also, as we head into year end, consider generating losses through active tax harvesting.  These losses can be used to unwind concentrated mutual fund or ETF holdings or buffer against future taxable gains resulting from potential inflexibility associated with this bill.  For more information on the value of tax harvesting and how it can add value to a client portfolio, feel free to watch this webinar

Lastly, we think now is a good time to dump concentrated mutual fund and ETF holdings to spread those proceeds into a diversified pool of equity holdings.  If you are interested in active equity managers, please consider Adhesion’s Asset Manager eXchange which can be found here.

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Adhesion Wealth Advisor Solutions & Auour Investments: Evolution of Downside Protection Webcast

auour-investments-sqEach month, strategists on the Adhesion platform offer insights on market trends and their products. We invited Auour Investments, to kick-off the Adhesion Manager Webinar Series.

To check out the recording of the Auour presentation, click HERE.

Visit the Adhesion eXchange to view Auour marketing material, performance data and much more.

About the Webinar:

Is Downside Protection on your Mind?

Downturns happen and the most recent have been some of the worst. With the current bull market in its eighth year and geopolitical risks creeping up, it may be time to think about the various strategies used to protect against material losses. This webinar will discuss the evolution in protecting against market draw-downs and the recent advances made using Regime-Based Investing.

Investing to the Regime with Regime-Based Investing

Regime-Based Investing is a new investment approach that dynamically adjusts market exposures throughout a changing investment environment. By adapting to the changing investment landscape, investors are offered a new strategy to minimize market downturns without the need to sacrifice performance in rising markets.

About Auour:

Auour is an ETF-based strategist that has been an innovator in Regime-Based Investing with five strategies that span the risk spectrum.  Robert Kuftinec  and Joe Hosler are two of the three founders of the firm and with their third partner bring over 65 years of combined investment experience and managing over $8Bil in assets at various major investment firms.

The Auour investment strategies are dynamic/tactical investment portfolios for both equity and fixed income needs.  The funds use ETF’s, which are low cost and tax efficient compared to mutual funds.

  • Fully Participate when markets grow – Auour’s algorithms also look to increase the aggressiveness if the market is constructive, allowing for the opportunity to outperform. Auour will change the investments to those that are intrinsically under-valued compared to others striving for better-than-market returns.  There are times when certain asset classes should work better than others, Auour’s models look to find those.
  • What makes Auour different? – The approach to downside protection is very analytic as the algorithms rigorously measure market risk and market movements.  The proprietary algorithms measure enormous amount of data every day to predict the risk in the market in their attempt to move to cash before material downside hits the markets.
  • In short, the Auour portfolios aim to participate in rising markets while experiencing less of the downturns when the markets are soft and can be customized to each client’s particular risk tolerance.
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Why Goals-based is not code-word for ‘ignore performance’.

There is a lot of confusion about what it means to deliver and receive a goals-based investment solution.  Most retail investors believe ‘goals-based’ is simply another attempt at dismissing under-performance.  Or at least so says a recent study cited by Wealthmanagement.com.  In the article, the study indicates that clients believe that “Goals-Based” equates to Performance.  We think it means much, much more.

Part of that disconnect can be attributed to our track record as an industry of wrapping otherwise straightforward ideas in jargon and arcane statistics.  Perhaps another cause of confusion is that many advisors simply do not have the wherewithal to architect, deploy, support and maintain a true goals-based framework.  At Adhesion, as we spoke with our advisory clients, we quickly came to realize that their clients were asking for investment solutions that not only identified where they were on their path to their goals, but also adjusted based on how they progressed on their objective.  We found that many so-called Goals-Based programs that were out there were largely theoretical and academic in nature – making them, at best  – unimplementable by most advisory firms.  We also found that many programs – in addition to missing the upfront and ongoing diagnostics of the client to their goal –did not take into consideration real-life factors like taxes, expenses, downside protection and real-life spending rates.  And for those that did, the cost and accessibility of the program was often prohibitive.

So we are excited to introduce Pathway Portfolios   The suite is comprised of 13 Unique Core/Satellite Portfolios – blending both active and passive investment styles across the three investor lifecycle phases – the Gain Phase, The Protect Phase and the Spending Phase.  The strategies have been built to address the unique challenges associated with each phase of an investors lifecycle:  The Gain Portfolios are designed for investors who are earlier in the investment lifecycle and looking to maximize capital appreciation through a globally diversified portfolio, but while staying within their risk appetite.  The Protect Portfolios are for those investors who are closing in on their goals and looking to achieve some level of capital appreciation yet limit downside exposure, which can be devastating for those approaching retirement (see 2008-2009).  And finally the Spend Portfolios are designed for those who have achieved their goals and looking to accomplish a target spending rate while simultaneously maximizing investment longevity.

The program leverages investment products from a combination of separate account managers, actively managed mutual funds, and passive ETFs and have been engineered to fully leverage the sophisticated Adhesion Unified Managed Account (UMA) platform.

We are excited to share them with Adhesion advisors who custody assets at TD Ameritrade, Schwab Institutional and Fidelity.  Please visit gotopathway.com to find out more.

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