The Product Puzzle
In today's marketplace, financial advisors have a wide array of products and services they can offer investors. Most advisors develop an expertise and comfort with only a small number of investment solutions, such as mutual funds, separately managed accounts, hedge funds, exchange-trade funds, or other securities. Most of these products have an appropriate place in a client's portfolio, but it's difficult or impossible for an advisor to be proficient in using all of them and even harder to use them as part of a fully integrated solution.
Searching for Solutions
Understanding the needs of clients and developing tailored investment solutions are the goals of every financial advisor. Clients seeking to generate income for their retirement years have different needs than clients who want to accumulate wealth or those who want to incorporate socially responsible considerations into their investment solution. Through Placemark's overlay management process, advisors are able to develop highly tailored solutions to meet the needs of a wide variety of client situations — unique solutions for unique clients.
The Unified Managed Account (UMA) is a new form of fee-based investment solution that allows the advisor to combine multiple unaffiliated products into a single account with automated services such as rebalancing and customization that better meet the needs of the investor. The UMA builds on the historic success of separately managed accounts (SMAs) and mutual fund wrap programs.
SMAs give advisors and high net worth clients access to institutional investment managers who construct portfolios of individual equities and/or bonds in a separate account for them. Unfortunately, a robust SMA solution for a client results in multiple accounts, numerous statements, and complex paperwork. Furthermore, delivery of a complete asset allocation requires spreading a client’s assets among multiple managers. Generally there is limited ability to customize the portfolio or to rebalance or efficiently process cashflows. Mutual fund wrap programs allow advisors to construct a complete asset allocation out of funds and support higher degrees of service, but they are burdened by the tax liability and other limitations of mutual funds. UMA programs combine the benefits of both separate account and mutual fund wrap programs while eliminating their shortcomings.
Unified Managed Account programs have quickly become one of the fastest growing solutions available to advisors who offer comprehensive investment advice and solutions. Broker dealers, banks, and registered investment advisors have all adopted the UMA product architecture as the future of fee-based investment advice.
Most investment advisors utilize investment products that incorporate active investment management in which an unaffiliated institutional investment manager is selecting individual securities in an effort to deliver above-market rates of return. Many advisors and institutions eschew the cost and potential tax liability of actively managed investment products in favor of passive or index-based investment solutions such as index mutual funds and exchange-traded funds. Unfortunately, neither of these index-based investment vehicles have the ability to deliver customized solutions for clients and only limited ability to control or tailor the tax impact on the individual client.
Market Index Solutions™ are portfolios of individual equities designed to deliver the underlying risk/return and performance characteristics of specific market indexes, the same indexes supported in most index mutual fund and ETF products on the market today. However, investors in MIS™ portfolios own the underlying individual securities, and the specific securities and trades can be customized to individual client needs, including tax, risk, and socially-responsible investing criteria. The result is a low-cost (no active money manager fees) indexed investment solution that is far more customizable than the products readily available to advisors today.
Clients entering or in retirement face a unique and complex need — how to transition from accumulation to decumulation, and convert their invested assets into an efficient source of income. A retired client's assets are typically spread across a number of accounts and a variety of investment products that they have acquired through a lifetime of earning and investing, and while these products and accounts might have been appropriate for growing the client's assets, they can create tax liabilities and operational complexity when it comes to converting that wealth to income.
For clients requiring income from their saved wealth, Placemark offers its Customized Income Management™ (CIM) solution. CIM™ is an investment service that operates at a household level, across accounts and products, generating the unique income required by an individual client based upon his or her unique risk, tax, required minimum distributions, and other client-specific criteria. Using CIM™, advisors are able to link the various accounts that are part of a household and implement a comprehensive and highly automated income solution unique to clients' needs.