How Break-Away Brokers are Changing the SMA Playing Field

This post is a summary of a session from the FRA’s 8th Annual Managed Accounts Summit.The moderator for this session was Kathleen Shkuda, President, Zigzag Consulting. The panelists were Eric M. Sutherland, Managing Director, Allianz Global Investors and Heather Gardner, Principal, CIMA, National Accounts Director, William Blair & Company.

According to Cerulli, separate account consulting has declined as a percentage of managed assets since 2007 while Rep as PM and Rep as Advisor have increased. This trend is projected to continue through 2011. One reason behind this is that RPM/RAA offer more control, Kathleen explained. With the onset of ETFs making it easier for advisors to manage portfolios, we’ve seen an increase in these two areas, she noted.

Kathleen reported that UMAs are growing, primarily at the big wirehouses. For example, Merrill Lynch is converting all of its separate accounts to UMAs and model portfolios. Even at some of the smaller firms, such as Bank of Hawaii (see below), MetLife & Citizen’s Bank are all starting their own UMA programs.

Independents have improved their recruiting and back offices and they have benefited from technology provided by custodial firms, Kathleen noted.

Wirehouses, on the other hand, have significant technology baggage. On the TAMP/ Custodian/ Independent side, they don’t have the technology backlog since they use outsourced solutions and truly open architecture, which gives them more flexibility. This allows an independent advisor or RIA to use more than one back office and get the best of all worlds.

From a money management standpoint, is there a preference for doing business with a wirehouse versus an independent?

“There is no preference,” Heather stated. “We want to be on both sides, because the advisors have been shifting both ways. In 2008/2009 the media was all over the big wirehouses losing advisors going independent.” However, Investment News has a trend tracker of advisor movement which showed that a lot of the wirehouse guys just went to other wirehouses. “We have to follow them,” Heather conceded. “You can’t let your advisor down if you have the assets there already.” As a money manager, William Blair has had to look at the economics from an SMA perspective. The firm would walk away from business if an advisor moved to another platform, but only had a handful of accounts.

Eric agreed, but believes it has to be a different model and approach, which is why Allianz is decentralized in the field. With wirehouses, they seem to have more success when they start with the home office and they have the research and the scale and the platforms in place, Eric explained. The downside of wirehouses is the economics. The rates continue to come down. “When we first got in this business, we were getting 65-70 bps, but those days are long gone,” Eric lamented.

How do you meet the needs of independents versus wirehouses?

On the independent side, Allianz has had better luck with newer strategies and carve-out strategies, Eric reported. Compared to wirehouse, the barriers aren’t the same, he said. Traditionally, you needed a 3-5 year track record and X amount of dollars in AUM. But now, a lot of wirehouses are building “emerging manager” categories, which allows newer strategies to get on their platform.

The two mindsets are very different, Heather observed. The independent side is very disjointed. From an SMA perspective, they’ll be used more by the larger teams for institutional or UHNW clients. “I think that UMAs will encompass a lot of the SMA business going forward as it becomes more adopted on the wire side,” Heather predicted.



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