The Pros & Cons of Overlay Portfolio Management Outsourcing

Excerpts from the 2009 MMI Technology & Operations Conference.

The speaker for this session was Randy Bullard, Executive VP, Institutional Business Development, Placemark Investments.

What is Overlay Management?

Randy began by breaking down Overlay Portfolio Management (OPM) into two main components:

  • Administrative/Operational Functions – Mostly accounting tasks such as simple asset class rebalancing, managing cash flows, wash sale prevention, and tax management.
  • Investment Management Functions – Involves more human and quantitative portfolio management judgment, such as making balanced decisions, risk vs tax value for a client.

Variables to Consider

OPM is a classic insource/outsource decision. Randy provided a few variables to think about:

  • Scalability – At what point do you get to scale? When does it make sense to insource it? It’s usually around $2 bil in AUM for most firms to go economically right-side up, Randy asserted. Assuming they have appropriate staffing levels and delivering fairly robust functionality. Up until the $2 bil threshold, you tend to be upside down.
  • Capability – The more investment management-oriented functions within OPM are very much a quantitative investment management discipline. If your firm doesn’t have that in-house or isn’t prepared to staff it, then you should consider outsourcing.
  • Firms should be honest when estimating startup costs.
  • Firms should understand the costs of compromise. A number of those programs launched with 5 models and very little or no customization capability, no tax management, flexibility or other advanced feature sets. These are all now initial costs of entry in order to grow assets.



The Wealth Tech Today blog is published by Craig Iskowitz, founder and CEO of Ezra Group, a boutique consulting firm that caters to banks, broker-dealers, RIA’s, asset managers and the leading vendors in the surrounding #fintech space. He can be reached at