Rep as PM: The Inside Scoop – Part 1

This post is a summary of a session from the MMI 2011 Fall Solutions Conference that was held in NYC last month.  It is part 1 of a 2 part series.  You can read part 2 by clicking here.

Marc Zeitoun, Managing Director, Head of Distribution, Rydex/SGI

Jay Link,
 Managing Director, Managed Solutions Group, Merrill Lynch
Peter Malafronte, 
Executive Director, Managed Accounts, UBS
George Raffa, National Sales Manager, Asset Management Division, SVP, Raymond James

I felt that this was one of the most useful sessions at MMI this year because the panelists all shared lots of information about their firm’s advisory business, including statistics (my favorite) and details about the inner workings of their programs.   Also, the moderator did an excellent job moving things along and asked insightful follow-up questions, which gave the panelists a chance to elaborate on some key concepts and helped make the session more interesting. — Craig

Rep as PM (RPM) and Rep as Advisor (RAA) are the fastest growing fee-based programs in the industry, increasing assets 40% annually over the past three years.  Any asset management firm that doesn’t have a strategy to address RPM is missing the boat.

Which term is more accurate, Rep as PM or Rep as Advisor?

Jay believes that the term Rep as Advisor makes more sense since advisors do quite a bit more than just portfolio management.  They act in some ways as both investment consultants and wealth managers.  This is an entrepreneurial community and some RPM advisors consider themselves to be style-specific and market themselves as money managers.  Other advisors see RPM as just another level of service that provides a better overall client experience.  They use discretion as a tool to deliver more holistic advice.

Peter really doesn’t like the RPM title, since advisors are acting in an investment advisory capacity. Rep as PM doesn’t adequately capture what the advisor is doing for the client. Planning, liability side of the balance sheet, trusted council. RAA is more accurate.

George feels that RPM works best for teams that are headed by a financial planner with one person that oversees the portfolios and spends 100% of their time on it.

What percentage of your RPM program AUM is currently in mutual funds or ETFs?

In the Raymond James RIA program, which includes both discretionary and non-discretionary, the percentage is over 50%, George explained. This has increased since the run rate for last 12-36 months was 60%. The asset base is slowly shifting away from individual securities towards mutual funds and ETFs, he said.

In PMP, there’s an even split between mutual funds and ETFs with about 20% of AUM each, George continued.  And mutual funds weren’t even available on the platform until late 2006.  Where they’ve seen the most growth in mutual funds and ETFs is from the organic increase in advisors moving into discretionary plus advisors coming to Raymond James from other firms, he stressed.

The Merrill Lynch RPM program has approximately 29% of its assets in mutual funds and 20% in ETFs, Jay answered.   Mutual fund assets have tripled in last three years at the expense of individual equities.  ETFs have been relatively flat over the same period, he stated.

ETF market share is small in the UBS RPM program, Peter confirmed.  Even in model portfolios they only see around an 11% run rate.

According to the MMI white paper, Trends in the Rep as Portfolio Manager Business, there are a number of drivers that have fueled the growth of mutual funds and ETFs in RPM programs:

Variety, the increasing availability of of reasonably priced institutional/advisory share classes, superior diversification, efficiency of exposure to many asset classes (such as alternative investments in a ’40 Act wrapper), the array of international/emerging market options, and flexible global strategies.

How do you respond to the skeptics in senior management who doubted the ability of financial advisors to manage money effectively? 

George said that they can, if they have the necessary support from the home office.  The industry trend is towards more RPM due to its flexibility and investor concern over volatile markets.  Sponsors can help to make RPM advisors successful by being transparent in their asset allocation models and manager selection process, he stressed.

When RPM first started, management believed it would result in an increase in litigation but that didn’t happen, Peter said.  The team approach seems to work best for RPM.  The top 25 advisors at UBS  that use RPM are all in teams with well-defined roles and responsibilities.

As explained in the MMI’s RPM white paper, entire advisory practices have been restructured to support RPM:

The team might include on or more client relationship  managers, analysts, portfolio managers, and client service personnel.  In fact, the largets (and perhaps the most sophisticated) teams are effectively operating much like RIA practices, but with one distinction — they are operating under the umbrella of a wirehouse, regional, or independent firm.

Does your firm’s RPM program allow hedging?

The concept of hedging in RPM programs is immature, Jay believes.  Shorting or margin usually aren’t allowed, although, some options or inverse ETFs are permitted.  Diversification parameters in their programs encourage portfolios to be long-only and fully invested, especially for entry-level and middle-tier advisors. There has been an increase recently in the use of non-correlated investment types, such as alternative investment mutual funds, he continued.

In light of the proliferation of mutual funds in advisory portfolios, what’s the best way for a third party asset manager to gain access to RPM/RAA accounts?

Managers need to understand who controls the shelf space at a firm, George explained.  Is it the home office or the advisors?  Some advisors are building their own models locally, while others piggy back on research provided by the firm.  Managers need to fight for that shelf space by providing innovative solutions.

Does your firm provide model and research guidance?  How important is this in the RPM world?

Firm provided research and model guidance is especially important to advisors that UBS refers to as “global asset allocators” — they look at the firm’s strategic and tactical asset allocation models, Peter reported.  UBS provides stock lists through their wealth management research function.  Their portfolio management group publishes three equity models and three parallel ETF models.  Some advisors these models exactly as provided and follow all changes religiously.  Others use them as a way to inform their decision making, as a kind of second-opinion for their own portfolio construction, he said. Marc followed up by breaking advisors into three groups; those that follow the firm research, those that are influenced by it and those that do it all their own.  Peter countered that even those advisors that do it all on their own often “take a peek” at the firm research even if they don’t admit to it.

How does a manager get an appointment with the RPM team?

To get an appointment a manager should start with a solution-based approach, since advisors are looking for answers, George advised.  The markets are difficult and the numbers aren’t coming in.  Standard asset allocation models are underperforming the indices.  The slices of the pie that advisors control aren’t performing well and they want data about why they’re not working or why they should be working or if they should move it.

For example,  provide new ideas in the fixed income or alternatives space.  Be pro-active and have ideas that you can talk about with conviction that compliment advisors current strategies.   The solution-based appointment is more powerful today than ever before, George emphasized, and it would be extremely effective with Raymond James advisors as well as their home office research team.

Jay concurred and added that managers should think about the leverage points.  The people that know Merrill’s advisors and team structures the best are their Wealth Management specialists.  Starting with them is a good first step, he noted.

Managers should be knowledgeable about a firm’s advisor segments — the high end are the rain makers, portfolio managers, and research analysts who are responsible for equity, fixed income and AI rosters and matrices that they use in their RPM portfolios, Jay concluded.

Company Overviews

  • Raymond James has 5,000 advisors with a mix of independent contractors and employees, an RIA division and a broker dealer.  Their SMA division has $63 billion in AUM and has RIA contracts where the FA is working with clients on a discretionary or non-discretionary basis.  They also have a UMA offering, called The Freedom UMA Account.
  • Jay is responsible for all FA-directed programs for Merrill Lynch Wealth Management Solutions group. Their RPM program is called Personal Investment Advisory (PIA) and has $90 bill in total AUM but only 4,000 out of 15,000 advisors use it.  Their RAA program is called Merrill Lynch Personal Advisor (MLPA) and has $120 bil in AUM with a much higher penetration of around 85-90% of advisors.
  • Peter is the product manager for the FA discretionary business at UBS.  Strategic Advisors is the non-discretionary program and also has around 85% penetration with their advisors.  Portfolio Management Program (PMP) is their discretionary program and has $60 bil in AUM with usage by 1,500 out of 6,800 advisors.  Growth at UBS is coming from advisors who are asset allocators and consolidators.  They have three different types of advisors, style-specific managers, those that are picking individual stocks and bonds and managing different asset classes, the biggest growth is coming from the global asset allocators who are using mostly mutual funds and ETFs to construct portfolios.  We have a group he calls “consolidators” that are moving out of other advisory programs into discretion as a way to better serve their clients with additional scale and efficiency for their business.

You can read part 2 of this summary by clicking here.

2 Responses

  1. I wish the PMer business from its beginning with Greg Phipps going forward would be memorialized. There is much to be learned by how industry push back has been overcome –that is still being played out by the industry lobby against fiduciary standing in the consumer’s best interest..

    Most of the innovations we enjoy today in advisory services were pioneered by a number of executives that have gone nameless, but at great personal peril these men have greatly advanced the advisory services industry slowily building innovation upon innovation which has taken us to this day. There is much more to come from innovations yet to be championed. The vision has not changed since the 70’s, the push back has just softened.

    This progress should be celebrated as it appeals to the more noble nature of advisory services and acting in the best interest of the consumer. The lesson is the consumer’s best interest always prevails in a free market–even when the industry foolishly insists otherwise. It is time to reset the industry’s ethical compass.




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