[Editor's Note: The word “visionary” is often overused. But when it comes to my friend Len Reinhart, he is among the few where the shoe fits. He led Morgan Stanley’s Consulting Group at its infancy and for many years as it became the industry’s largest managed accounts business by assets. He started Lockwood from scratch. He is one of the few true pioneers in our industry. Len and I keep in touch and he recently reminded me he predicted the unified managed household (UMH) would define how household portfolios are managed 20 years ahead of schedule. Now that his ideas are finally taking root, I share a recent conversation.}
Jack Sharry: What was it like when you dreamed up the fee-based business in the 1980s?
Len Reinhart: I came to E.F. Hutton as an analyst and spent 18 great years there. The industry was focused on commissions and products. You had rooms full of brokers “smiling and dialing” making cold calls,
Sharry: Ah, the good old days.
Reinhart: I was consulting to large corporate and government defined benefit plans. There were two questions: how do you put asset allocation and money managers together to meet future liabilities? And, why should anyone listen to a 25-year-old broker’s advice on investing money? So, we listened to clients. We asked them about their goals, what kept them up at night, and then we would recommend money managers.
Sharry: Why wouldn’t you listen to what people need before recommending investments?
Reinhart: Things have changed over time. It was mutual funds, then separately managed accounts, then “wrap-fee” programs and later UMAs and models. The emphasis has gone from pushing product to achieving better outcomes. We always succeeded when we listened to clients and responded to their needs. That hasn’t changed.
Sharry: Speaking of change, it would be nice if we still had defined benefit plans.
Reinhart: Tell me about it. I’m a baby boomer. We’ve had a front row seat as employer-funded plans ended. My father’s pension covers his medical expenses and phone bills. Mine barely pays for lunch when I golf.
Sharry: How is that different in how you manage your money?
Reinhart: As a boomer, your definition of risk changes dramatically. You stop caring about the horse race and trying to “win” by white-knuckling it through volatility. The big risk is running out of money. I haven’t gotten a W2 in 12 years. I still have bills to pay. What I care about now is how I’m doing with my decumulation plan.
Sharry: Wasn’t that the thinking behind the UMH (Unified Managed Household) white paper you wrote 20 years ago, “2010: A Managed Account Odyssey”?
Reinhart: The idea behind UMH was to take financial planning, investment management, tax management, all of it—under one umbrella. I had guessed, maybe optimistically, the coordinated household approach would be a mainstay by 2010. It turns out I was off by a decade.
Sharry: In your defense, you did note the biggest hurdle is everyone was building railroads with different track gauges. You can find a lot of people who say they can do UMH, but they’re using tech and investment vehicles that weren’t meant to work together.
Reinhart: It took a long time for everyone to realize they were headed in the same direction, and that it was necessary to build API-level connections so the software could talk to each other. But another big piece was advisors didn’t want to touch anything that looked like tax advice. Now they, and their compliance departments, understand tax guidance has to be a part of a UMH platform.
Sharry: In suggesting the next best actions to improve outcomes as part of a UMH, taxes make the biggest impact. Platform builders now recognize that. How do you feel, seeing this concept you wrote about two decades ago developing into something tangible?
Reinhart: A UMH helps boomers better than anything I’ve seen, and for good reason. We’re in front of a huge wave of retirees who need help stretching their dollars as far as they can. What the industry is building now will help everyone. It doesn’t matter if you’re GenX and helping your parents and kids, or you’re a millennial whose life is getting financially complex, or a boomer. UMH is about showing people the best next step to take right now to get closer to what they want.
Sharry: Thanks, Len. You were and remain ahead of the pack.
Jack Sharry is co-chair of MMI's Digital Advice Community, sits on the Next Chapter Advisory Council, is host of the WealthTech on Deck podcast, author of the book Authentic and Ethical Persuasion, and is the executive vice president of LifeYield.