That could be a sticking point for advisors commoditizing SMAs as just another product. For this reason, Adam Westphalen, CIMA, with Vista Financial Strategies, a division of United Planners Financial Services, stresses the importance of advisor education, preferably through a program like the Certified Investment Management Analyst (CIMA) sponsored by the Investment Management Consultants Association (IMCA). "Such an education provides the capability for advisors to conduct the due diligence process on their own if they want to and, more importantly, to better determine the quality of due diligence research they are getting from vendors," says Westphalen.

The Aid Of Technology

"You've got to spend some money on the technology and be willing to take the time to learn how to use it," says Potter. "There's so much information to read, and you do have to be willing to take the time to understand and learn first-you can't just expect to do this business overnight. It takes time and commitment."

The ongoing development of technology platforms and tools simplifies the SMA adoption process, but it also creates scalability of solutions and reduces formerly prohibitive fees on smaller asset sizes. Just a few years ago, the scant platform offerings were turnkey solutions provided by such well respected firms as Lockwood Advisors Inc., Brinker Capital, ADVISORport and EnvestnetPMC. They focus on providing functions allowing independent advisors access to client profiling, proposal generation, asset allocation choices-usually from preset models-and a slate of managers from which to choose.

Today, even simpler platform-like services are being offered by such firms as Morningstar, which simply track manager performance. This service is valuable for advisors who are searching for and evaluating information for their own database of managers, because it offers performance information for advisors to use in their due diligence process. However, proper due diligence requires more. "The challenge with (manager performance tracking services) is you're dealing with information that may be 90 to 180 days old," says Westphalen. The added benefit of working with an outside source is that advisors can spend more time hand-holding and supporting the client, according to veteran consultant Barry Mendelson, CIMA, AIFA, founder and managing director of Capital Market Consultants LLC.

The truth is that most advisors don't have the desire or the time to crunch numbers, do endless hours of research, or become analysts or due diligence specialists. But they do need to understand how to interpret the data they receive from the various sources they use. One of the challenges with most platforms, though, is that few offer tools to aid in the interpretation of the information they provide or help advisors gather. "Analysis, interpretation, application use, how the managers fit with other managers, what kind of clients should use them, what kinds of accounts they should be used in-most don't do any of that," says Mendelson. "These platforms allow advisors to search databases and then require them to spend a great deal of time analyzing the data to determine the fit with their clients and their portfolios. I believe most advisors do not want to be analysts," he continues. "They'd rather have a conversation and have all the data they need so they can know what's going on. Only then will they have time to manage relationships and attract assets."

As a result of this desire to have qualified analysts do the interpretation for them in addition to having all the tools they need at their fingertips, the newer platforms are incorporating deeper levels of due diligence, research and customization for independent advisory clients. Most of these new offerings are from business consultants. They not only assists independent advisors in setting up investment advisory businesses, but also provide focused technology support for risk-return analysis, proposal generation, basic due diligence and a mix of investment options including ETFs, mutual funds, SMAs and variable annuities.

"You're seeing a trend toward firms adding levels of due diligence, which really are important at all levels to the client, the advisor and the firm or sponsor that's creating the platform," adds Westphalen. "Different types of platforms may have different types of relationships."

For example, Denver-based Prima Capital has analysts on staff (as does Capital Market Consultants) who visit managers on site. It then provides the analysts' research to its advisory clients. Prima is also teaming up with decision-making software innovator Klein Decisions to offer advisors added resources for determining the proper asset allocation and manager mix. Klein, which is based in Raleigh, N.C., offers a K4 product that aids in the selection of separate accounts as well as in strategic decision-making. Prima provides due diligence, research and advisory services on more than 500 separate account products from 250 money managers. Other entrants into this field are lining up with new offerings soon (see sidebar for more services).

Adding Value For Clients

According to both Mendelson and Westphalen, advisors need to embrace programs that provide the deeper levels of due diligence and clearly articulate the difference between what the due diligence service provides and what the advisor provides. "It's not to diminish the advisor's role in the equation, it's just a much more powerful conversation for me to have with a client by saying, 'Based on what we've discussed and on the financial plan we've created, we now have to implement an investment strategy we designed based on the amount of time, volatility and return you desire. Here's the asset allocation model we've provided you and the managers that Wilshire [for example] has determined would make sense for you and your portfolio. Here's what it looks like.'"

He further states that the bottom-line responsibility of advisors is not necessarily to do the due diligence themselves but to find the best capability for doing it, and that might include an outside source. Potter notes that advisor attitudes also have to change. "They have to put on the consulting hat, which makes all the difference in the world for clients."

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