Vestmark Advisory Solutions has historically focused on providing access to manager models through the Vestmark Manager Marketplace and by offering discretionary trading and various back-office services. More recently, we have repackaged our capabilities and began offering a similar set of services directly to asset managers. As managers seek to grow in the RIA market, they can now leverage our technology, experience, and existing custodial integrations to alleviate many of the operational burdens of doing business across the more disconnected individual RIA marketplace. We have created a framework that replicates the simplicity of model delivery so managers can run faster and not worry about the operational burdens when new opportunities require SMAs to be manager-traded.
Hortz: From your current and previous experience working nearly 20 years with advisors and asset managers, how do you see that asset managers can best succeed with RIAs and retail SMAs?
Battista: Asset managers need to be visible and have a simple and consistent narrative. Why have you been successful at generating value for clients and why is it likely to persist in the future? One thing I have learned over the years is that regardless of the channel, financial advisors do business with managers that establish a long-term relationship. They want asset management services, but more importantly, they want a business partner who understands their practice and can offer value in ways beyond investment returns. This is particularly challenging in the RIA space because of its decentralized nature.
In a resource-constrained world (which most of us live in), this only further emphasizes the need to allocate resources to distribution over operations and administration. It is just good business sense to focus on the activities that have the most visible impact on your business and to outsource non-differentiating middle and back-office services. As business owners themselves, RIAs understand this mentality, and most would not view outsourcing of these services as a negative factor in manager selection. It may be viewed as a strength if you can highlight the focused expertise that will be applied to their clients’ accounts.
Hortz: How exactly do you work with asset managers on these issues?
Battista: There are many ways we can repackage our capabilities to support asset managers, but the most simplistic example is to replicate the experience of model delivery with RIAs who require SMAs to be manager-traded. In this example, the manager would become a model provider on our Manager Marketplace, which currently houses roughly 1,000 models from 300+ managers. The RIA would source models through the Marketplace and Vestmark Advisory Solutions would manage accounts in line with the assigned model on our own instance of the VestmarkOne platform. The manager is responsible for keeping the model accurate and updated and Vestmark Advisory Solutions handles all the trading, reconciliation, and quarterly/annual client reporting.
Currently, there are no costs associated with being a manager on our Manager Marketplace. The RIA would be charged a fee based on AUM for access to models, trading, and other outsourced services, but these fees are significantly lower than the cost of your typical TAMP and RIAs will generally bundle this fee with the asset manager’s fee.
Hortz: Any advice or recommendations for asset managers who are looking to expand their SMA capabilities to the RIA market?
Battista: Customization is king. Any industry publication you read these days has “offering more customized portfolios” as a top priority of wealth management firms. In today’s world, clients are demanding hyper-personalized advice and solutions. Wealth management firms who fail to adapt to this trend will likely see their market share decline.
The evolution of model portfolios has brought down costs, increased the universe of available strategies, and driven significant growth in AUM. However, the industry is now grappling with the most obvious negative of model portfolios…they are rigid and can often feel “off the shelf.”
RIAs have chosen to be independent because they like to do things a certain way and not be forced to manage their practice as defined by a large firm’s home office or back office. Similarly, they often have a very specific way they seek to manage their client’s assets and they tend to hold themselves to the highest fiduciary standards.
Asset managers should seek to identify RIAs that are looking for a partnership to manage a large portion of their client’s assets and build them a custom set of model portfolios. Additionally, offering ongoing tax management and values-based customizations are becoming table stakes. Most of the prominent technology providers in this space have either been acquired or are simply holding their capabilities captive to their own asset management strategies. Firms that are not interested in or capable of building these capabilities in-house may want to consider working with a partner like Vestmark, that can help power white-labeled customization at scale.
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