Why Sleeves Are Easy and Inexpensive

These two terms, Separately Managed Accounts (‘SMA”) and Unified Managed Accounts (‘UMA’), are used throughout the financial services industry. The fact that they are at times used interchangeably can cause confusion as to the true nature of the underlying structure of these accounts and the benefits/drawbacks inherent to each one of them.

When SMArtX discusses an SMA account, they are referring to the idea of ‘one account, one strategy’, and the strategy is often executed directly by the asset manager. This type of arrangement, where the investor has a direct relationship with the asset manager, is often also referred to as a “dual-contract” relationship. This structure has a few benefits for the investor. Specifically, that the manager is the one handling the account and the client maintains a direct relationship with the asset manager. The drawbacks include the idea that the client has to source the manager in the first place, meet minimums for a SMA (these can be in the range of $20mm+), and has to have a different account for each strategy allocation. This can become very expensive, given the high minimums, and operationally burdensome when you have multiple accounts. For the manager, setting up the account and adding another relationship to the trade rotation creates additional operational burdens.

These drawbacks have led to the creation of the UMA account, which SMArtX refers to as ‘one account, multiple strategies and multiple individual positions’. The UMA is just one account opened by the client in their own name. This account can house multiple investment strategies, as well as hold individual equities (long and short), options, ETFs, mutual funds, and ADRs. The immediate benefits are compounded by the fact that SMArtX provides turnkey account opening and access to over 450 strategies, along with the ability to build & allocate custom portfolios across multiple custodians and accounts simultaneously. Each strategy is accounted for in a sleeve, which is a virtual account within the UMA housing the securities related to the strategy. Sleeves enable the investor to understand the performance of that individual strategy, despite it being held in the same account as other strategies and does not incur any additional costs or burdens on the investor. Leveraging SS&C Advent’s Black Diamond software, those investors can also understand the holdings of each strategy and manage household exposures across accounts. This functionality is all available for one, low fee and is fully integrated.

Not all UMAs can do this, but SMArtX’s unique technology provides a simple, easy solution for investors to effectively manage their entire investment management process.

Is It Time To Shift From Funds To Managed Accounts?

Is It Time To Shift From Funds To Managed Accounts?

How Technology Is Providing Better Value

Managed Accounts have been in existence for decades, but the landscape is still dominated by derivative fund products in the form of mutual funds and, more recently, exchange traded funds (ETFs). However, technological innovation in the managed accounts industry has seen a rebirth of these solutions as advisors and broker/dealers look for advantages to help clients achieve a better investment experience.


SMArtX Offers Direct Indexing for Free

February 7th, 2018 – West Palm Beach, FL:  SMArtX Advisory Solutions (“SMArtX”), a leading Turnkey Asset Management Platform (TAMP), today announced the expansion of its direct indexing with 14 new models from S-Network Global Indexes, including the Thomson Reuters/S-Network ESG Best Practice Indices.

Included in this offering is the S-Net 500 US Large Cap Index. In an industry exclusive, SMArtX will offer the S-Net 500 free of charge with no platform or manager fees. The S-Net 500 has maintained a monthly correlation to the S&P 500 of .9989 over the period from December 31, 2012 through 2017. Over the same period, annualized tracking error was .45%.

SMArtX will also add several Thomson Reuters/ S-Networks ESG Best Practice Indexes, designed to provide access to companies exhibiting favorable corporate social responsibility practices.

Direct indexes help advisors by providing portfolio diversification with lower fees and broad or specific exposures. They also remove the risk of price decoupling that affects index-based ETFs at the market open and during times of high volatility. The indexes featured on SMArtX have minimums as low as $14,000, essentially bringing these institutional strategies to the masses, and can be customized to accommodate ESG/exclusion mandates and tax-efficiency.  Furthermore, SMArtX’s existing drift management tools and tax-loss harvester provide for efficient portfolio management and optimized after-tax returns. SMArtX charges a maximum of 15 bps to access all the features and strategies on the platform.

“SMArtX has already achieved the next investment management revolution with its direct indexes, created by firms with a long history of implementing index models. It is not as simple as just putting a set of rules into play and calling it a strategy,” said Evan Rapoport, CEO of SMArtX Advisory Solutions. “Direct indexes are a sign of the growing effect of fintech on the wealth management industry, and SMArtX continues to redefine applications within the space. To make life easier, SMArtX even trades the accounts at each custodian for the advisor.”

SMArtX has been offering direct indexing in unified managed accounts (‘UMA’) for months, and already offers 30 direct indexes from BRI Partners, featuring passive long only, long/short, and market neutral strategies.

S-Network’s direct indexes are based on size, themes and factors.  They include the factor-based smart beta S-Net US Aggressive Growth Index, which consists of 100 large and mid-cap growth stocks, and the concentrated S-Net US Foreign Revenue Index, which comprises companies whose revenues are generated primarily from foreign sources, affording investors international exposure through US companies.

The growing selection of models, investment tools, and platform applications of SMArtX, combined with the power of SS&C Advent’s Black Diamond portfolio reporting and accounting functionality, creates a complete end-to-end managed accounts solution.

“SMArtX continues to develop technology to disrupt the wealth management industry and add value for investment advisors. First SMArtX developed technology to provide real-time performance reporting and offer alternative strategies in a UMA.  Now we are leveraging our technology to bring more institutional strategies to the masses at no cost while streamlining the investment process, simplifying portfolio construction, and helping maximize after-tax returns,” said Mr. Rapoport.

About SMArtX Advisory Solutions (
SMArtX Advisory Solutions is the next generation turnkey asset management platform and the only platform to seamlessly offer traditional, alternative, and passive direct index strategies in a unified managed account structure.  The firm also uses its proprietary trading and managed accounts technology to power SMArtX, SS&C Advent’s integrated unified managed account solution. For more information, visit

About S-Network Global Indexes, Inc.
S-Network Global Indexes, Inc. is a publisher and developer of proprietary and custom indexes. Founded in 1997, S-Network publishes over 200 indexes, which serve as the underlying portfolios for financial products with over USD 8 billion in assets under management.  S-Network indexes, which are supported by a state-of-the-art technology platform, are known for their transparency and efficiency. For more information, visit


Breaking Away the SMArtX Way

Recent developments in the large brokerage house space have made it more difficult for advisors to go independent, just as technology and the shift from a brokerage to a fee–based business has motivated advisors to start their own shop.  Low payouts, increased red tape, new policies, and constricted solutions prompt many wirehouse advisors to look for greener pastures, but concerns remain over the ability to seamlessly shift their business to be independent.

It may seem daunting at first, but starting your own advisory business can be much simpler than it used to be.  Many custodians, planning technologies, reporting/accounting software providers, CRMs, and TAMPs now cater to the ‘breakaway’ RIAs, with full teams dedicated to their success.

Here you can read about a firm who recently left a large wirehouse, and his only regret was that he didn’t do it sooner.


What is Alternative about Alternatives?

FinTech Revolutionizing Managed Accounts – Part 6

Investors generally reference “alternatives” as investments that fall outside the two primary asset classes, equities and bonds. These investments can be as vanilla as options and currencies, or far more esoteric, like timber, collateralized debt obligations, or art.  The problem with such a broad classification system is many commonplace investment strategies are grouped with obscure asset classes when these strategies have more in common with traditional investments. This is particularly relevant for equity long/short and market neutral strategies.

A quick search on BarclayHedge shows almost 2,000 long/short equity programs whose only reason for classification as an alternative is the fact that they borrow and sell securities into the market, with the idea of giving them back when necessary (ideally purchasing them back at a lower price). This is something many investors have the opportunity to do in their own brokerage account, using the very same, everyday securities that are being bought under the guise of a ‘traditional’ strategy.  So, it begins to beg the question: “What is so alternative about this?”

Many sophisticated investors have moved beyond the metric of “alternative vs traditional” when considering equity strategies.  Since the securities are the same across portfolios, strategies are differentiated by other metrics, such as risk/reward profiles, net exposures, and volatility profiles. Strategies are selected for criteria like smaller drawdowns and shorter recovery times, higher Sortino ratios, and less downside monthly capture. In fact, the only thing alternative about these strategies is the statistics they post, like having a 50% correlation to the market or a half the volatility of equities.

Now, to be clear (and because our compliance team makes us say this), not all alternatives are designed to lower volatility. Many are looking to maximize returns and may be more volatile and risky than traditional investments. Each investment strategy needs to be analyzed on its own merit in the scope of a specific investor’s risk profile and return objectives. But the bigger point is that these strategies allow advisors to tailor a portfolio around a client’s objectives rather than simply fitting the client into one of a handful equity and bond portfolios.

Platforms like SMArtX make it easy to research and allocate to these strategies in the same client brokerage account as traditional and index strategies.  Coupled with the power of SS&C Advent, automated account opening, Advisor as a PM, rebalancer, and drift management tools, SMArtX is a complete turnkey asset management platform.


Can Retail Model Marketplaces Challenge TAMPs for Assets?

(Wealth Management Today) This article is the second in our series on the tools and technologies that help connect asset managers to their distribution networks. Whether they are called hubs, exchanges or marketplaces they have a wide variety of functionality and business models and they all share one key feature; ability to transmit managers’ investment models to sponsor firms and advisors.

We previously wrote about institutional model hubs (See 7 Model Hubs Battle for SMA Managers & Sponsors), which are B2B products that connect sponsor firms and asset managers.  They are designed to be more like packet switching routers that move investment models from managers into the vendor platform to be distributed.  Advisors never interact with these tools since their firms have operational staff that handle these tasks.

Retail Model Exchanges are designed with advisors as the primary users. These exchanges are designed for advisors to be able to browse and select from a smorgasbord of managers, ETF’s and fund providers and build their own investment models.

My good friend and industry guru, Michael Kitces, wrote an excellent piece on the emergence of model marketplaces.  I would recommend reading his article for a brief history of turnkey asset management platforms (TAMPs) and an explanation for how these marketplaces are unbundling what had been traditional TAMP services.

As Kitces points out:

… robo-advisors created an efficient operational solution (digital onboarding and automated trading and rebalancing tools to manage model portfolios) to what is ultimately a distribution problem (how to get your particular managed account solution into the hands of consumers?)

Model marketplaces are a major shift in the landscape of investment management. They allow financial advisors access to a broad range of third-party-created investment models while retaining control over implementing trades. At the same time, marketplaces offer asset managers a new distribution channel for their products that are quickly becoming commoditized.

These marketplaces are a direct threat to existing TAMPs such as Envestnet, SEI and Loring Ward. But can they succeed in disrupting the market and gathering significant assets?  Or will they remain niche players and remain no more than flies on the rumps of the market leaders?

In this article, we will cover the following offerings:

Three of these are from custodians (Folio Institutional, TD Ameritrade, TCA) and three are from technology companies (Orion, Riskalyze, HedgeCoVest). This is a good opportunity to compare and contrast how the different firms structured their offerings.

Riskalyze AutoPilot Partner Store

The AutoPilot Partner Store, announced at the T3 conference in February 2017, is a model marketplace that serves as an extension of Riskalyze’s robo solution. Advisors can currently subscribe to model strategies from ten third-party asset managers, as well as Riskalyze’s own “Risk Number” models.  (See Riskalyze Expands Beyond Profiling to Become a TAMP Supermarket)Model Marketplace

The partner store offers models from ten third-party providers, including AlphaDroid, Cambria, CLS Investments, LikeFolio, SEI, Morningstar Managed Portfolios, Blackrock and First Trust. The core offering is similar to the manager network offered by full service TAMPs such as Envestnet or FolioDynamix, albeit on a much smaller scale. In addition to the third-party models, the Partner Store inventory includes 21 pre-constructed “Risk Number” models that are available at no charge for up to $10 million of AUM.

In the initial test drive, we liked the workflow that Riskalyze created for manipulating their models. Advisors can review and edit external manager models, which by itself is a table stakes function now. What is unique is that Riskalyze displays the before and after model changes side by side for the advisor to review and approve. The system will also highlight any changes in the risk profile (via their risk number), allowing advisors to accept model changes, continue to edit or abandon the updates altogether.Model Marketplace

We wish the platform offered deeper tax management functionality. After model changes are reviewed, the advisor does get a preview of the trade including estimated trading costs and capital gains. It would be great of the advisor could get a warning about capital gains before he or she is about to execute the trade!

The pricing for the AutoPilot Partner Store begins at 15 bps and goes down to 10 bps for advisors with a $5 million AUM commitment. The overall costs for an advisor using Riskalyze AutoPilot, Pro-Premier and proprietary models will start at 25 bps, plus the monthly per-advisor fee for the underlying risk profiling solution.

The AutoPilot Partner Store is part of Riskalyze’s move into the crowded TAMP space and was probably the primary driver of last October’s $20 million equity investmentfrom FTV Capital. They seem to have flooded the market with their risk profiling software, so expanding into vertical markets makes sense.

Plus, selling models generates asset-based revenue versus per seat licensing for software.  It is more lucrative since revenue automatically increases as your clients’ assets grow.

Riskalyze still has a ways to go before advisors trust them to outsource their investment management.  But considering their past success, odds are they will be successful.

Summary of features:

  •  Riskalyze clients only
  •  Intuitive management tools
  •  Portfolio analytics
  •  Standard due diligence
  •  Custom index products

Orion Eclipse Communities

Orion Eclipse Communities marketplace was unveiled in February 2017 as part of Orion’s next generation trading and rebalancing platform. Available exclusively to Orion Advisor clients, Communities is currently in beta testing. When fully launched at the end of September, the marketplace will allow advisors to build and share models peer-to-peer.  (See Orion Advisor Tries to Eclipse the Competition With New Portfolio Rebalancer)

This peer-to-peer option is a differentiator.  No other exchange offers the ability for advisors to share their own models with other advisors.

The Communities model marketplace is a part of the newly unveiled Eclipse platform.  Our first impression of Eclipse is a fresh clean look, combined with long-awaited asset location functionality and ability to automated tax loss harvesting. Consistent with Orion’s user experience, the new generation platform is a series of interconnected dashboards. Each view provides access to actionable items as well as opportunities to drill down into detail.Model Marketplace

Compared to its competitors, Eclipse is unique in how it approaches model building. The goal of the developers was to “have fun with how users can construct models,” and the result is unlike anything else we have seen. Advisors can build models in an environment that is highly interactive and visual. They can drag and drop “containers of securities”, combine and change underlying sub-models and asset classes. Tolerance bands and drift preferences can be customized at the sub-model level. This is an innovative virtual playground that provides advisors with a visual hierarchy and structure of their models.

For new users, the underlying setup is straight-forward. Most advisors use the same set of 10-12 underlying “core” category models that are combined and blended to suit the needs of their clients. Once those sub-models (like “equity” or “large cap”) have been created, they can be used as building blocks (think a grown-up version of Legos). There is no limit on the number of model levels (models of models), although Orion reports no current use cases past four levels. Setup time varied by firm and how many modeling exception it has. A firm with simple needs and few modeling exceptions could be up and running in as little as a couple of days.  Complicated clients could take up to a month. Most clients fall somewhere in between.Model Marketplace

The launch of Communities will take place in two steps, according to Randy Lambert, Orion’s President.  The first is signing on third party model providers and the second will be giving Orion advisors tools to share their own models. Lambert could not disclose model provider names but mentioned that 5-6 “household names” will be offering their SMA’s on the platform.

Advisors will be able to create their own websites within Communities to house their models, marketing materials and past performance data. So far, advisors have been receptive. Orion leadership expects there will be a few dozen advisor strategies available at the time of the full launch.

As more firms join Communities, we will be able to see the full scope and impact of the peer-to-peer model sharing. The current vision is that interested advisors will be able to review model performance and buy models from other advisors – all the while retaining control and discretion over exclusions, rebalancing parameters and trading. This functionality is similar to the Folio Institutional Model Manager Exchange that also allows advisors to license their strategies to other advisors.

The cost of the Eclipse platform is 15% on top of the per-account charge of the underlying Orion solution, but the vendor is not marking up the models or requiring back-end revenue sharing fees from the providers. As Lambert put it, Orion’s goal is to enhance the offering to the advisor universe while holding true to their philosophy of remaining agnostic.

Summary of features:

  •  Orion Advisor clients only
  •  Peer-to-peer model marketplace only (no professionals yet)
  •  Highly visual and interactive model building experience
  •  Standard due diligence
  •  Open APIs

Folio Institutional Model Manager Exchange

The tagline for this offering invites advisors to “Be your own model manager”.  Advisors can build their own models, license models from third-party asset managers or take advantage of 160 “ready to go” models that can be tweaked to suit the individual needs of their clients.

Folio Institutional is one of the “boutique” RIA custodians that target smaller advisory firms and solo practices with very low or no minimums combined with technology and personalized customer service.  They are a subsidiary of FOLIOfn Investments, Inc., a self-clearing broker-dealer that started in 1999.

Folio’s Model Manager Exchange (MMX) can be broken down into three sub-offerings. First, advisors can build their own models from scratch using equities, mutual funds, EFTs and ETMFs as components. Second, advisors can license models from third-party asset managers (or even offer their own models on the exchange as a tool to earn additional revenue). Finally, there is a library of Ready-To-Go Folios ™ that is available as a basis for model and portfolio building at no additional charge.

MMX is a nice addition to the Folio trading and rebalancing platform, which was originally built as a robo-advisor called Advisor Connection.  It has since gone through a number of iterations and is now used by a number of turnkey asset management platforms (TAMPs), smaller banks and credit unions.

Only 15% of Folio’s business is retail, according to the firm’s president, Greg Vigrass.  The other 85% is spread across RIA’s, broker-dealers, insurance companies, TAMP’s, banks, and credit unions.

An interesting aspect of Folio’s MMX is its use of fractional shares, which means that models can be applied to accounts of any size. This contrasts with the SMArtX approach of basing the account minimum on the lowest account value that it would take to replicate the strategy in whole shares.

Folio recently added 31 Morningstar® Managed Portfolios ETF and mutual fund models to MMX including asset allocations for both tax-sensitive and tax-deferred accounts.

Model-building capability is robust, with an option to focus on specific sectors, investing styles or geographic regions. Multiple-level models of models are supported as well. The platform includes analytics that allow advisors to measure their models against benchmarks and other industry statistics. Advisors who wish to tap into additional research and model-building expertise can connect with Folio Research, an affiliate firm (presumable for a fee, although we could not locate details on the firm’s website).

Folio has quietly built out an impressive suite of advisor-focus products as well as an open architecture back-end technology platform that is full-accessible via APIs.  Some recent high profile client wins include developing a digital advice channel for the US Navy’s Federal Credit Union and acting as the broker-dealer and providing technology for Sally Krawcheck’s ElleVest robo-advisor.

Summary of features:

  •  Folio Institutional platform clients only
  •  Peer-to-peer model marketplace as well as professional managers
  •  80 managers and 400 investment strategies including Morningstar
  •  Portfolio analytics
  •  Fractional shares
  •  Open APIs

iRebal Model Market Center

TD Ameritrade pre-announced the iRebal Model Marketplace in early 2017 at its National LINC conference at part of the new VEO One ecosystem. The Model Marketplace launch is scheduled for the fourth quarter. 

The iRebal Model Market Center is being described as a “supermarket for model portfolios”. Advisors will be able to pick models from product manufacturers and third-party asset managers. The Model Market Center will be available to firms that custody with TD Ameritrade, as well as others who use iRebal as their rebalancing engine.

When it comes to model providers, the word is that there will be at least 5 “product manufacturers” who will supply strategies for Phase I of the launch. These models will be available to advisor users at no charge and will most likely only include EFTs and mutual funds. In the second phase of the roll-out, the marketplace will add models by third-party investment managers. No word yet on the pricing for those, or on which investment managers will be represented.

Based on our early look behind the curtain, advisors will be able to search and filter strategies to locate best-fit options for their clients. They will have an opportunity to review marketing materials, presumably in a document vault of some sort. No indication yet on whether third party research will be available. Other vendors have shared with us that many advisors are too cost-sensitive and do not place a premium on third party research.

Once advisors subscribe to a model, it will be pulled into the core iRebal engine. Advisors will be able to customize the model and combine them together to create UMAs and creating rules for different tax segments.

Any model changes made by managers will be available to the advisors immediately. This sounds similar to the SMArtX real-time offering, although the devil is in the detail. We would have to see the final product before rendering an opinion. Advisors will retain discretion over accepting these proposed changes, consistent with the core value proposition of a Model Marketplace: to give advisors tools for managing portfolios and step back when it comes to execution.

Summary of features:

  •  TD Ameritrade clients only
  •  All models free to advisors
  •  Professional managers only (5 to start)
  •  Real time model changes
  •  Not available yet

HedgeCoVest SMArtX

SMArtX is a model marketplace that is currently available exclusively to Advent clients. It offers deep integration with Black Diamond. We loved SMArtX’s intuitive workflow, real-time performance, trading capabilities that minimize dispersion and its exceptionally deep due diligence. The marketplace currently has 180 models with plans to add more over the next three months.Model Marketplace

The TAMP market has attracted over $300 billion in assets with innovative products and the latest technology to improve advisor efficiency.  Most traditional TAMPs design their platforms to be outsourcing solutions where they handle all investment decisions and trading.

All the model marketplaces covered here are trying to disintermediate the traditional TAMPs by offering models directly to advisors. But none provide SMA strategies or the sophisticated filtering tools necessary to comb through the myriad of options so advisors can build appropriate portfolios for different clients.

SMArtX (which stands for Separately Managed Accounts Real-Time Exchange) was designed specifically to deliver SMA strategies to advisors with powerful analytical tools for research and portfolio construction.  This sets them apart from the other marketplaces and also targets a different advisor demographic that focuses more on SMAs and UMA’s than other accounts.

We enjoyed the user experience that SMArtX has developed.  Its advisor dashboard is exception-based and intuitive.  The ability to search and filter across hundreds of manager strategies is excellent.  Each strategy has an overview page with details about the manager and their methodology.  The overview page also has real-time pricing and intra-day performance, which I have never seen on any platform before.

While I do not expect an advisor to select one manager over another based on today’s price of their strategy, it is a cool feature and highlights the platform’s real-time pricing capabilities.Model Marketplace

SMArtX currently has over 180 models from 100 managers with plans to add 100 more models over the next three months. That includes money manager strategies that are not available on competing marketplaces as well as custom index products with minimums as low as $5,000. Some of the products developed by SMArtX, like their S&P 500 custom index, are free to advisors.

“Our advisors are looking for a scalable platform with access to best-in-breed investment managers and cutting edge solutions,” shared Evan Rapoport, CEO of SMArtX. The system offers extensive filters that include regions, account compatibility, asset class, sector focus, model types, model strategies and more.  In-depth statistics are provided such as Sharpe Ratio, Sortino Ratio, R Squared, Top Short and Long Holdings to help advisors select the right strategy.

Models can be edited and saved as drafts, so that advisors have the tools to test-drive ideas and dynamically tailor marketplace strategies to the needs of their clients.

Another unique feature of SMArtX is the depth of due diligence that goes into selecting the managers for the marketplace. In order to qualify to offer strategies on the platform, managers must have zero infractions on their records. They must also submit to extensive background checks covering their criminal, credit and regulatory history. Furthermore, managers must present a three-year performance history and undergo a strategy audit. In other words, SMArtX does not simply rely on publicly available data (which is often not audited) but does their own audit for an additional layer of assurance.

The extra time and effort that goes into the SMArtX due diligence serves as natural limit on the number of managers that would qualify to be in the marketplace. This means they will never has as many managers as Envestnet, for SMArtX leadership, the additional assurance is worth it.Model Marketplace

While the platform does not offer any third party research, they do provide advisors the tools to generate “fact sheets” that rely on audited data. Asset managers can upload marketing materials and even webinar recordings into the platform’s vault to address frequently asked questions and offer additional insights into their models. This empowers advisors to do their own homework.

Their Portfolio Builder is well-designed and easy to use.  It dynamically updates key statistics such as standard deviation and estimated performance as strategies are added and removed to help the advisor tweak the portfolio.

When it comes to the platform’s reach, we must note that SMArtX is only available to Advent clients and primarily targeted at firms using Black Diamond.  SMArtX can be thought of as both a model marketplace and also a wealth management platform.

It can handle not only model management, research, and portfolio construction, but account opening, trading, rebalancing and even performance.  This puts SMArtX in the same category as Orion Eclipse, although their rebalancing and trading functionality is nowhere near as comprehensive as Orion’s.

Unfortunately, there is no single sign on functionality for Black Diamond/SMArtX users right now, it is on the product’s roadmap. The developers are getting requests for integration with Advizr and eMoney, so more APIs could be coming in the future.

SMArtX charges 5-15 bps as a platform fee that also includes the Black Diamond subscription fees. The cost of models varies by manager (and some models, like the S&P 500 index model, are offered at no additional charge).

Summary of features:

  •  Advent clients only
  •  100 managers, 180 models
  •  Ability to use leverage
  •  Portfolio analytics and reports
  •  Document vault
  •  Real-time model updates and prices
  •  Minimal trade dispersion
  •  Standard and deep due diligence

Trust Company of America Money Manager X-Change

Trust Company of America Money Manager X-Change (TCA MMX) has a unique characteristic among the marketplaces in that it has been in existence for over ten years, while the others are relatively recent releases.  TCA revamped the UI and functionality and relaunched MMX last year.

Longevity is not the only positive feature of MMX.  It supports both professional manager products and peer-to-peer advisor models as well.  The advisor models have become so popular that the assets in them are already over $1 billion, according to CEO Joshua Pace.Model Marketplace

TCA, headquartered in Centennial, CO, has seen their assets increase 38% since 2014 and currently stand at around $16.5 billion, Pace reported.  A significant percentage of assets are concentrated at some of their largest clients, which include Scottsdale, Ariz.-based United Planners Financial Services and Glastonbury, Conn.-based Symmetry Partners LLC.

MMX has basic search functionality with the ability to filter by manager name, investment vehicle, average trade frequency, fee and minimums. Unfortunately, there are no options to filter by MPT statistics or performance history, but you can see individual model performance when drilling down into the search results.

Pace explained that there are actually two separate model exchanges; one called MMX, which contains the full universe of managers and models and the other called MMX Select, which contains a curated subset of investments. This would be useful for advisors who are looking for research help to save them time.

Many TCA advisors who leverage MMX do so to find satellite strategies to compliment their core products, Pace noted.  MMX supports multiple models in each account and accounts can also hold legacy and non-model assets, if required.

MMX is integrated into the overall TCA technology platform, which is called Liberty, and includes everything from proposal generation to trading and rebalancing functionality to performance reporting and billing.  It is robust enough to support large RIA’s $1 billion in AUM and above. Pace informed me that TCA has never lost any of the $1 billion and up RIA’s to a big box custodian.

While TCA does charge strategists for shelf space on MMX, there is no incremental cost to advisors, Pace insisted.  Available managers include CLS Investments, Horizon Investments and Symmetry Partners.

Summary of features:

  •  TCA clients only
  •  Basic searching and filtering
  •  Support for SMAs
  •  Free model curation
  •  Integrated into wealth management platform

Model Marketplace Summary

A few common threads can be found across all six of these products. They all limit access to only their custody or platform clients.  No external interactions are supported.  There is no MMI model marketplace for retail advisors.  Once you select a vendor, that is the marketplace you are limited to. Unless you want to switch between custodians or technology platforms to access different universes of products.  And that is not a tenable option for most.

A few criteria can be deciding factors for advisors that do not work with any of these custodians or platforms, but are open to switching or adding:

  • Riskalyze  AutoPilot Partner Store is custodian-agnostic, easy to use and relatively low cost. Advisors who don’t need research tools, fancy search criteria or a wide selection of models will see this as a good option.  Advisors who already use their risk profiling tools will have even more of an incentive to try this out,
  •  Folio Institutional Model Manager Exchange only supports professional managers so advisors interested in peer-to-peer models should look elsewhere.  Folio’s strong technology stack makes them an attractive option for RIA’s interested in working with a boutique custodian that will be more attentive to their needs. MMX provides advisors who are more hands-on in their investment approach with some decent tools for directly purchasing professionally-managed models as well as the option to purchase research as well. I’m not sure I would switch custodians only for MMX, but it is a nice benefit for advisors that are interested in the rest of their technology platform.
  •  Orion Advisor Eclipse Communities only support peer-to-peer models, which is good for advisors that believe they have good performing models to offer and would like to see what it would be like to be an asset manager.  Advisors that are not happy with their wealth management and considering Orion should see this as an additional check in the plus column over other products.
  •  Trust Company of America Money Manager X-Change has the benefit of both professional managers and peer-to-peer models.  Advisors looking for a custodian that provides more customized service can include MMX as a bonus when making their decision. It is an excellent option for existing TCA clients who should scan the list of managers to see if there is anything there they might like to include in their client offerings.
  •  TD Ameritrade iRebal Model Market Center is not available yet, so we are not able to verify its capabilities or product offerings. But TD Ameritrade has a good track record of supporting their advisors, so for advisors who are interested in switching assets over to TD, this will be an interesting choice.
  •  HedgeCoVest SMArtX is currently only available for SS&C clients and specifically targeted at Black Diamond users, so for advisors looking for a new performance reporting platform, this could be a nice two-for-one option.  Advisors who are heavy SMA users should definitely take a look at the platform, if just to get some ideas to send to their current technology provider about how product search and portfolio construction should work. I hope HedgeCoVest launches an open architecture version of SMArtX at some point.

Unfortunately, there is no one-size-fits all solution.  My advice for advisors is to clearly define their firm’s goals and investment methodologies before searching for a new custodian or technology platform so that the benefits of a model exchange can be better aligned with your firm’s future direction.


Direct Indexing

FinTech Revolutionizing Managed Accounts – Part 5

Security indexes (or indices, depending where you are from) predate the 20th century and have been used as benchmarks for investment managers for many decades. Beginning in 1975 (or potentially as early as 1967), investors began using index funds as a way to passively invest in a subset of securities based on a clear set of rules, gaining broad market exposure while reducing costs. Over the last few decades, we have seen enormous growth, of both interest and assets, in index mutual funds and ETFs. These fund vehicles make passive indexing easy for all investors and are available across multiple platforms.

Recent advances in technology have brought passive indexes back to their pure form by enabling a parallel investment option in the form of direct indexing, accessible to advisors through the SMArtXChange UMA platform. Utilizing the SMArtXChange technology, advisors and their clients can invest directly in securities held in the index as easily as buying an ETF.

Why does this matter? The biggest advantage is the ability to use tax-loss or tax-gain harvesting on a portfolio holding many different securities. Additionally, direct indexing does not have the same liquidity and dispersion issues during periods of high market volatility in ETFs, and SMArtXChange is able to provide intraday pricing and liquidity, a marketable improvement over mutual funds.

Innovative index providers have also been improving the status quo and creating a number of new index products that have the ability to execute investment strategies both long and short, facilitating strategies such as market neutral and hedged products in any given sector, geography, company metric, etc. These indexes, and other investment strategies, can all be found on SMArtXChange’s model UMA marketplace.


Exclusions and Tax-Loss Harvesting

FinTech Revolutionizing Managed Accounts – Part 4

Advisory clients can be an eccentric bunch, with varied demands and unconventional reasons behind them.  Whether your client has taken a firm stance against the perils of tobacco, the side effects of petroleum, or simply doesn’t want to invest in a specific state because that is where their ex-spouse is from, advisors are beholden to their client requests.  Fortunately advances in fintech make it easier to accommodate client requests, and take advantage of functionality to increase the net return.

Exclusions and tax-loss harvesting have shown to be effective means of managing a client’s portfolio and producing a higher after-tax return over non-active portfolio management.  Exclusion tools offered through SMArtXChange enable advisors to exclude certain equity positions, which is particularly relevant when your client has certain SRI/ESG interests or other restrictions in place.  This application can also be expanded to sectors, industry, and geographic areas.  This same exclusionary tool will lock in a long-term position to prevent the buying and selling of that specific security to maintain a low cost basis and automatically manage a client’s exposure. Finally, substitutions can be implemented through the same interface to further maximize your client’s return.

Dovetailing into exclusions comes tax-loss harvesting.  Used to increase after-tax returns, advances in fintech have enabled automated tax-loss harvesting to help advisors maximize their client’s portfolio value.  However, its use can have some limits due to the expansion of ETF products, and the inability to utilize the underlying securities as the offset. This can be particularly relevant when buying broad market index ETFs.  SMArtXChange addresses this by offering index products that actually purchase each of the underlying securities in a given index.  This gives advisors the flexibility to use some of those 500 positions [for example] to offset tax liabilities in other investments.  Some of these index products are even available free of manager fees.


Technology Special Section: VIEWS FROM THE EXPERTS

(Financial Advisor) Technology has revolutionized the financial industry, from Wall Street to Main Street, and wealth management is no different. Robo-advisors threatened wealth managers with scalability and ease of use, while unified managed accounts (“UMA”) platforms provided tools to access every investment manager under the sun. However, neither solution is truly complete. Robo-advisors are rigid and lack the depth to handle complex financial situations. UMA solutions are cumbersome, often forcing advisors and their clients to perform tedious tasks. Advisors needed a better solution, one that combines the accessibility of a robo-advisor with the flexibility of a UMA platform. Advisors needed tools to scale their assets under management while reducing costs and streamlining operations to provide meaningful impact to their bottom lines. Most importantly, advisors needed to spend their time where they can be most productive, with their clients.

At HedgeCoVest, we have taken a new look at the UMA industry. Originally developed by and for the hedge fund industry, our solution was designed to facilitate the quick trading industry with a modern approach to infrastructure. Using our proprietary systems, we created a turnkey UMA platform focused on real-time trading and real-time reporting. With a click of the button, advisors can implement a portfolio that combines traditional and alternative investment strategies, ETFs, mutual funds, and stocks in one account. Our built-in rebalancer monitors for portfolio drift and allows advisors to open and close positions across client accounts seamlessly. Intra-day trading and real-time portfolio reporting ensure comprehensive information flow, and our trading functionality removes the burdens associated with managing multiple client portfolios. Our platform, coupled with our alliance partnership with SS&C Advent, applies cutting edge financial technology to comprehensively address an advisor’s investment needs.

Evan Rapoport, CEO


Accessing Alternatives in a UMA

FinTech Revolutionizing Managed Accounts – Part 3

Hedge funds have long been mired of the world of Regulation D private placements, until now.  While several strategies fit well into the idea of yearlong lock ups, consolidated asset pools, and high fee structures, many alternative strategies operate in the everyday world of buying and selling publicly traded equities.  If these underlying equities are electronically traded, listed, and priced each second, then why the need for a private investment fund?  The answer has historically been a lack of infrastructure to efficiently offer SMAs and the inability to effectively execute a long/short investment strategy in any other vehicle.

SMArtXChange has created a proprietary technology that facilitates the real-time model delivery of a hedge fund trading strategy directly into client brokerage accounts.  By working with the hedge fund managers to open their strategy up to a prospective investor pool that dwarfs the entire hedge fund industry, SMArtXChange gives advisors the option to easily access these alternative investment strategies, and combine them with traditional strategies, in a single UMA account.

The UMA structure removes the limitations of a private placement and 1940 Act alternative product, producing an investment strategy that is allowed to operate as the Portfolio Manager envisioned, with the complete freedom to buy and sell securities, and implement leverage.  While often regarded as a riskier investment option, strategies that utilize leverage and short selling have historically illustrated the ability to lower portfolio volatility, while generating an annual return above the S&P 500 TR. Contact us for a sample illustration of how a combined traditional and alternative portfolio, utilizing leverage, outperforms the S&P 500 TR by about 85% with about 25% less volatility over the last 10 years.