By Tom Stabile
A Smith Barney veteran now in the independent brokerage world aims to build a managed accounts platform in the next 18 months that will embed two concepts often discussed but seldom applied broadly in the high-net-worth market – unified managed household planning and liability-driven investing. Frank Campanale says First Allied Securities of San Diego is building the platform with FolioDynamix, a technology and asset management program outsourcer.
Campanale led Smith Barney’s consulting group until 2003 and later formed a consulting firm before taking his current role as head of First Allied’s Advanced Equities Wealth Management unit. He is considered a pioneer of the managed accounts business, with roots stretching back decades at Smith Barney and its E.F. Hutton predecessor, and a senior presence in the Money Management Institute (MMI) industry association.
Campanale says planning investments around clients’ personal financial goals and taking a household-wide view of their portfolios are fundamental ways advisors can serve as a broad “wealth manager” instead of simply as an escort to investment products. “I want to put some teeth behind the term ‘wealth management,’” he says.
The concepts and technology behind liability-driven investing (LDI) and unified managed household (UMH) planning have existed for several years, and some high-net-worth market firms have tacked them onto their platforms. For instance, the ability to align portfolio construction with a client’s personal liability horizon is already part of some financial planning software programs. And some vendors now offer UMH-enabling systems to aggregate investment data about a client’s holdings that are held away from the advisory relationship, though few current offerings are comprehensive.
But First Allied appears to be planning the first large platform that would embed these tools in hopes of making them a routine piece of every advisor’s arsenal. The firm’s Guided Portfolio Solutions lineup also will include overlay management capabilities; open architecture separately managed account (SMA), unified managed account (UMA), and mutual fund wrap platforms; and standard client proposal, trading, performance reporting, and portfolio accounting functions.
“[First Allied] is identifying the holes in the existing system,” says Robert Ellis, senior analyst at Novarica, a New York-based strategic consultant. “I have not seen others building it as explicitly as they’re talking about it, as part of one integrated platform.”
The endeavor is an example of Campanale’s “thought leader” stature in the industry, says Christopher Davis, MMI’s president. “Frank is the type of path-breaking executive who can bring these ideas to the market,” Davis adds.
Campanale says he went to Advanced Equities, which serves more than 1,000 advisors who are independent contractors, with the goal of building a “leading edge” platform. While it could be a recruiting tool, he says it was not designed specifically to boost the advisor ranks.
The first phase was a new mutual fund wrap program launched last month, and SMA and UMA versions will follow in the coming months. The platforms will be populated with third-party products selected jointly by First Allied and FolioDynamix.
Campanale says while other vendors will contribute, FolioDynamix is an anchor. “They’re willing to work as a strategic partner rather than trying to shoehorn us into what they’ve prebuilt,” he adds. “We wanted to avoid ‘me-too’ stuff.”
FolioDynamix views itself as an “enabler” rather than a vendor, and most of its relationships involve custom builds, says Joseph Mrak, CEO of the firm. “We’re going after the larger firms with our approach,” he adds.
Campanale says typical outsourced turnkey programs add layers of cost and offer common-denominator technologies, making them less competitive with wirehouse systems. He says First Allied’s new platforms will eventually supplant the firm’s existing lineup of multiple turnkey providers.
First Allied’s advisors might be slow to transfer existing client accounts to the new systems, but will likely apply most new assets to the systems, Campanale says. The bigger goal is to acclimate advisors to using LDI and data aggregation tools. He says while sophisticated advisors in the market might currently apply some of these practices, few firms are emphasizing the tools.
“How do you get the mass of advisors to start taking this approach with clients?” Campanale asks. “You automate it as much as possible so they get the hang of it. [This process] naturally leads to discussions about long-term health care planning and setting up family trusts. If you don’t take that approach, you’ll start losing clients to a bank or financial planner.”
He says it also “delivers on the promise” to clients that advisors have a long-range view. “It’s not a verbal or written promise, but it’s an implied one,” he adds. “Clients want you to help them not outlive their money.”
Novarica’s Ellis says the idea of building these tools into advisor systems can put a firm ahead of the game. But he also cautions that the tools are only useful to a high-net-worth client base, as opposed to the mass affluent market.
LDI is well-known to institutional investors, if not widely used, but its presence is limited in the high-net-worth sector. Ron Ryan of Ryan ALM, one of the concept’s biggest proponents, says the premise is the same to any investor – tailoring an investment plan to ensure sufficient funding at prescribed future milestones.
For an individual, those might be funding a child’s education or wedding, buying a second home, or ensuring a comfortable lifestyle in retirement, Ryan says. He says the investor should have a personal “funded status” index comparing current assets to future liabilities, and that advisors would plan client portfolios against that index to strive for fully funded status while still meeting near-term expense needs. “But that’s not how asset allocation is done in America,” he says. “Asset allocations are typically based against market indices.”
Institutions usually have actuaries to carry out the math-heavy formulas. That makes the notion of automating the tasks for advisors particularly attractive, Ryan says.
Campanale says new technologies are making planning tasks that were once clunky much smoother. But some features still require industry-wide evolution, such as the UMH challenge of ensuring that other firms will share data feeds to let an advisor track client assets from elsewhere. He says he expects client and industry pressure to break past current logjams.
“Ethically, I don’t think firms have any choice to not share data if that’s what clients want,” he says.
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