Category Archives: Uncategorized

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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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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Beyond Benchmarking – Part 1

Our industry is full of benchmarking surveys. The problem is, many of them do little more than report stats and give no real insight into the factors that cause some firms to outperform the others. The Boston Consulting Group’s Global Wealth 2015 report is different in that it gives us a look at what the keys to success actually are by focusing on what the wealth management industry’s most successful players are doing right. Using the data from benchmarking studies conducted over the past 3 years, BCG identified those whose performance has consistently outperformed their peers.

To identify consistently top firms, BCG’s research took into account growth, financial performance, operating models, sales excellence, employee efficiency, client segments, products, and trends along a number of dimensions, including locations, markets, client domiciles, and different peer groups. Taking into account the overall strong asset performance over the past 3 years, the top performers were those firms who clearly stood out in terms of generating high revenues per relationship manager, acquiring new assets, achieving best-in-class revenue and cost margins, and doing all of this with a lean organization.

Top performers are consistently superior in multiple categories. This included gains of net new assets of 16.1% of the previous year’s AUM; 6% over average performers in revenue margin; -36% over average performers in cost margin; and -2% over average performers in total FTEs.

In seeking to determine why these top firms were consistently out-performing their peers, BCG found that they all conducted the following five mission critical activities:

  • Segment-specific Value Propositions and Coverage Models. A one-size-fits-all, cookie-cutter approach is no longer viable in today’s wealth management industry. This applies not only to operations and costs, but to clients as well. BCG concludes that customers will not continue to pay too much for services they don’t need or understand, or for insufficient guidance and advice.
  • Rigorous Price Realization in Target Client Segments. The most successful managers clearly define which client segments they are targeting. This leads to more effective price realization, and ultimately can result in significant revenue increase.
  • A Differentiated Advisory Offering. Clients demand a clear value proposition in our age of the “robo-advisor” and low-cost online brokerage services.  And it’s not just about differentiating the advisory process – it also applies to the client experience.
  • A Focus on Front-Office Excellence. The high performing firm can achieve more than double the revenues of average performers. Likewise for the acquisition of new assets. However, though the benefits are clear, many managers still struggle to optimize their front-office.
  • The Ability to Measure and Manage Profitability. BCG found that for their 2015 benchmarking participants, few steered their businesses based on profitability. Rather, revenue-based measures were the approach favored by the top performers.

Creating the executive “mental shelf space” and resources to attack these mission critical activities means clearing away other non-critical activities. Top advisors rely on the Adhesion investment platform to handle back office functions while delivering a superior, personalized client experience.

Next week we’ll take a deeper dive into the mission critical activities themselves.

Check out this short video to learn more about what we can do for you.

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Press Release: Adhesion MMI Nomination Highlights Innovation for Advisors and Portfolio Managers

April 1, 2015 – Charlotte, NC – Adhesion Wealth Advisor Solutions Inc. (“Adhesion”), a
personalized Unified Managed Account (UMA) platform for Registered Investment Advisors
(RIAs) nationwide, is honored to announce that they have been nominated for the 2015 Money
Management Institute’s (MMI) “Advisor Solutions Service Provider of the Year” award – one of
several Industry Leadership Awards presented by this national association.

This award is granted to the service provider that best contributed to the innovation, growth and long-term sustainability of the advisory solutions industry.

“We are very humbled but proud of our nomination and the strong support of our client
partners,” said Michael Stier, President of Adhesion Wealth Advisor Solutions.

Those who nominated us said this:

  • “Adhesion is a leader in innovation and client service. By providing more than just a trading and performance platform, they help advisory firms better manage their client relationships by demonstrating the value of tax efficient investment programs and tracking trends in their client base, including behavioral issues. Furthermore, their behavioral driven portfolios help advisors build strategies around their clients’ needs and demonstrate value.”
  • “Adhesion is the only truly integrated solution built specifically for independent RIAs. As a solutions provider for investment delivery that is a true partner with advisors, Adhesion’s
    seamless integration coupled with true customization make it stand out from the crowd.
  • “Adhesion is dedicated to allowing investment managers and portfolio managers to grow their business without having to worry about micro-managing their clients’ separate accounts. Adhesion’s technology and staff are able to monitor all aspects of the client account by keeping security and cash drifts within tolerance bands and providing: account rebalancing, account structuring, adherence to securities restrictions and account trading.”
  • “Adhesion’s next generation TAMP solution allows advisors to choose from any of the hundreds of objective-based models managed by third-party firms available through its Adhesion Portfolio Services (APS). With APS, advisors have turnkey access to a single strategist or portfolio manager.”

“This goes a long way towards elevating the conversation about finding more innovative clientcentric solutions for the business challenges that advisors, as well as investment and portfolio managers are facing right now,” added Stier.

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Why are TAMPs a Hot Topic at TD Ameritrade Institutional National LINC 2015?

2015 is the year of the next generation TAMP.  There’s a reason why advisors are packing the room at the TDA national conference to learn what these TAMPS have to offer.  A recent article in Think Advisor, Scott Martin poses the question: will TAMPs take the upper hand in 2015?  According to Martin, 87% of all large-cap equity managers lagged behind the benchmark in 2014.  And while some best-of-class managers are still “squeezing alpha out of a tired bull,” the cheaper route might be to simply hand off these pure index products to a specialist; the kinds of specialists that can be found populating TAMPs.

As Martin points out, on paper a TAMP sounds perfect.  With advisors looking for ways to outsource investments and asset managers eager to sell their expertise, TAMPs offer an attractive solution for all parties involved.  However, with so many options out there it can be hard for advisors to cut through the noise and find the outsourcing partner that’s right for them.  Says Martin: “The old question of ‘why’ to outsource the portfolio has been answered.  The big question now is ‘who’ advisors want to partner with.”  So far, outside of the huge all-in-one platform providers, the field is wide open.  Recognizing that not every advisor is ready to outsource everything all at once, they are even allowing for account-by-account conversions.  So what do advisors have to lose?

The sticking point for many advisors can be delegating the selection of securities.  Advisors, Martin says, need to let go. “With the right program, even the due diligence is built in, so there’s not even any need to pick the right managers.”  And this is a key point: outsourcing to a third party can free up advisors to become relationship managers who focus on client-facing and business building activities.  This union is quite a bit more profound than simply adding on additional technology.  As Paul Ahern of Winslow Capital puts it, “…they are committing to an equivalent of a restructuring of their wealth management business model.  If a TAMP is only ‘bolted on’ to an existing advisor product set and just another product among many, then all the advisor has achieved in increased complexity and cost.”

There is still a window open for advisors who haven’t outsourced some or all of their investment management to do so and still gain a competitive edge.  With multiple TAMPs still battling it out, RIAs have both ample selection and a buyer’s market.  Consider what a provider like Adhesion Wealth has to offer.

Adhesion allows advisors to focus on their clients and business development and outsource the investment management nuts and bolts.  With a varied selection of world class investment strategists and asset managers, Adhesion gives clients the benefit of best in class investment expertise and powerful resources to fit any investment approach.

Check out our Adhesion Portfolio Solutions video to learn more.

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Breakout Growth for RIAs with Dan Klein

We hope you enjoyed our latest webinar, “Breakout Growth for RIAs” with TD Ameritrade’s Dan Klein.  In case you missed it, check out the replay here.

Dan Klein delivered multiple key strategies and insights into achieving breakout growth.  Here are just a few of the highlights.

Dan Klein pointed out that delivering high impact events is an important way to initiate your growth strategy.  These events allow you to connect with prospects and clients around their topics of interest and cement new relationships.  He listed some great ideas for events you can hold for your own clients and prospects.

  • Cultural: trip to an art museum, hold cooking classes, wine tastings
  • Charitable: get clients to bring in donations of clothes or food (this can also be done in conjunction with another event),  work together in the community
  • Entertainment/recreational: host a private showing at a movie theater, car racing, fashion show, question/answer session with a local author, bowling
  • Health and Wellness: hold a flu shot clinic, spa day, invite a dietician to discuss healthy living

Dan Klein also discussed how we should be leveraging our clients’ contacts to invite prospects to our events.  Instead of using “who do you know” language, try using the approach of “I see that you know.”  Use Linkedin to find out who your clients know, and take it from there.

Many RIAs are challenged to find the resources, and specifically the mental shelf space, to build a strong marketing culture.  Ask Ty McDaniel, Managing Director and Head of Sales, about our outsourcing and practice management solutions.  Email him here.

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An Investment Advisor’s View of Model Portfolios

When Brad Bickham (principal and CIO at Sargent Bickham Lagudis) first started out, he wasn’t using model portfolios; far from it.  In an August article from the Wall Street Journal’s Voices column, Bickham describes how initially he gave clients a large amount of latitude in determining their own asset allocations.  Eventually, he began to question whether the time and money being spent on multiple transactions for each individual client portfolio was worth it.  Since each portfolio would usually have a slightly different allocation than the others, handling them separately meant constantly making adjustments to each one to keep them aligned with their goals.  In the case of multiple portfolios geared towards the same kind of goal, Bickham decided he could no longer justify the one-on-one approach.

Model portfolios make sense on a number of levels.  Fundamentally, they are a reaction to pressures coming from a rapidly changing RIA market.  Currently we are seeing extreme pressure on advisor fees driven by competition from robo-advisors and new national RIA firms.  At the same time, advisor costs are also rising in response to consumer demand for more digital interaction and a general increase in labor costs.   RIAs caught in the middle of these negative market forces are feeling the crunch and scrambling for ways to increase efficiency and scalability without sacrificing client experience.  Enter the model portfolio.  Using models, advisors can scale their investment services while providing a consistent experience across a larger client base.  Disregard naysayers who say models allow for no personalization.  Adhesion Wealth, for example, allows the RIA to define model portfolios and customize them with certain rules and preferences.  Advisors can have the best of both worlds.

Now, Bickham uses models that contain investments he and his firm have already vetted, along with asset allocations that align with common investor goals and risk tolerances.  Clients pick an allocation that lines up with one of the models, and that model will then inform decision-making for each client with that allocation.  In Bickham’s words,

“It simplifies things for the firm, because we’re focusing on a smaller set of investment decisions that can be translated across the entire firm and benefit everyone.  We also find that the models improve our ability to communicate with clients and monitor their investment performance.”

However, Bickham also points out that even with model portfolios, advisors still play a “critical role” in analyzing each client’s individual situation.  For example, the models his firm uses are tax insensitive, so if the implementation is not being watched over by the advisor the client could end up with too many realized gains.  He also warns that clients may become concerned if they see the advisor making too many within the model.  He suggests a middle-ground between following the model and too much activity that could result in fees, taxes and more trading than the client is comfortable with.

We believe that implementing the kind of model portfolio strategy described in the article not only increases efficiency, but just as importantly frees up time that can then be focused on front office activities that add alpha.  This is a great way to shed some back-office baggage and explore new ways to strengthen and nurture client relationships.  Time once spent making small trades on 15 different portfolios could be used to take a client to lunch or a meeting to discuss substantive long-term planning.  There are two benefits to clients here.  Obviously, any client would appreciate a noticeable increase in their firm’s efficiency, but far more compelling is the additional alpha that an advisor can provide by freeing up time and resources.  Ultimately, everybody wins.

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