September 9, 2015 4:21 pm

Defining Next Generation Rep-as-PM

Great technology helps advisors increase efficiency, reduce costs and improve client service. Old and dated technology has the opposite effect. In today’s hyper-competitive wealth management world, it has never been more important to have access to the best technology.

Case in point, the Rep-as-PM (rep-as-portfolio manager) segment of the market accounts for approximately $850B AUM and has grown 29% CAGR since 2008 (source: MMI 3/11/2015 Press Release). These numbers are remarkable as is the allure of the opportunity. Providing next-generation tools today gives you an edge in attracting new advisors. It also helps retain those you already have.

The growth and adoption of Rep-as-PM is significant to me as it is built on a 30-year old approach to providing custom client solutions that requires making trade-offs in how you use, implement, supervise and process investments. For example, the traditional technology framework most firms have in place doesn’t have tools to create and apply models to groups of accounts. Nor does it allow advisors to effectively incorporate additional investments like separately managed accounts (SMA) that would otherwise give them access to better tools and investment products to achieve their desired client goals. Trading is often limited to one account at a time and there is no such thing as overlay trading. Compliance departments are forced to use a patchwork of processes and systems to gain insight into what’s going on at the client and advisor level. With such a narrow capability, the growth in AUM suggests the pent-up demand for Rep-as-PM must be tremendous – especially if you can eliminate the pain and inefficiency for advisors.

Next-generation Rep-as-PM tools promise to eliminate much of that pain. They are delivering increased scalability and profitability for the advisor practices as well as their home offices. They leverage a unified managed account (UMA) chassis such that the rep-as-pm component can be seamlessly managed alongside SMAs, strategists, ETFs, mutual funds and equities in a single account. This “single view” breaks down legacy investment product silos and how we interact with them. No longer do advisors have to worry about what is the easiest investment or program to use. Next-Gen Rep-as-PM gives them the opportunity and flexibility to create portfolios with investment in their clients’ best interests.

Sophisticated trading tools flexibly support the home office and advisor to efficiently implement their best thinking across the entire book of business. Advisors create and assign investment models to groups of clients. Client-level customizations are captured and automatically applied. Overlay trading easily handles one-off client situations and mass trading of groups of linked accounts. The supporting technology frees up the user to trade in ways that work best for them while leveraging the efficiencies derived from additional functionality.

Operationally next-gen Rep-as-PM tools also utilize an advanced core accounting engine to drive process efficiencies in areas like cash management and multi-custodial support. End client reporting can reliably calculate and report on sleeve-level performance. Compliance teams with oversight responsibilities are supported with dedicated reporting. Collectively, these benefits create opportunities for firms to optimize processes and dedicate more time to serving their clients.

Moving to next-generation Rep-as-PM gives firms the opportunity to implement a best-case operating model. It drives higher levels of client satisfaction and retention through more consistent and easier interactions. And, it helps firms and advisors become more profitable. Next-Gen Rep-as-PM brings a new level of flexibility and client solutions going far above today’s limited capabilities.
When evaluating vendors here are a few questions to ask that will help you understand if they can support your firm and the future of your Rep-as-PM programs:

  • How do you incorporate Rep-as-PM into your UMA chassis?
  • What degree of flexibility will our advisors have when creating allocations and models?
  • How are client-level customizations handled?
  • What options will I have with regard to overlay management?
  • What compliance controls are in place to insure clients are invested appropriately?
  • Describe your approach to sleeve-level performance?

In a future post, I’ll talk more about next-generation Rep-as-PM and UMA. That’s a big topic and one that is worthy of its own space.