Separately managed accounts offer many benefits to investors versus a mutual fund, including individual customization and tax efficiency. These benefits are very attractive to mass affluent investors (those with $100,000 to $1,000,000 in investable assets) who have experienced the "double whammy" effect of mutual funds over the past two years - negative returns coupled with capital gains distribution. According to Celent Communications, mass affluent investors represent $15 trillion in total assets. By tapping into this investor segment, advisors, sponsors and managers can attract a portion of the estimated $1 trillion flowing into managed accounts through 2005 (Financial Research Corp, 2002).
Financial services firms seeking to enter the Managed Accounts market must weigh the economics of servicing individual accounts with $100,000 in assets. Managed accounts will introduce scalability challenges for portfolio management systems. Investment teams will need to be able to tailor trading decisions based on individual investor restrictions and tax considerations. Operational personnel must efficiently handle account administration tasks as well as the exceptions which will arise in each account. Financial advisors must understand the managed accounts process and the value to clients and prospects.
Vestmark enables sponsors, asset managers and service providers to profitably deliver Managed Account products and services. This is done by addressing the operational and distribution challenges of providing Managed Accounts products and services.
Communication between Managers and Sponsors
Vestmark provides a range of integration capabilities to automate data and message flows between investment managers and sponsors. Our techniques require no systems enhancements or modifications - we will work with existing systems, such as mainframe-based wirehouse trading systems, to automate data and message flows for participating managers.
Additionally, Vestmark is a member of the Money Management Institute (MMI) and fully supports the data and process specifications published by the MMI.
Account opening processes
Vestmark has an automated account opening process for accessing, reviewing and creating new managed accounts. The core process is based on the MMI new account opening process but can be tailored to a particular manager, sponsor or product. As part of the account opening process (and all processes managed by Vestmark), any exceptions which arise are routed to the appropriate person(s) for expedited resolution. Exception notifications can be sent via email and are available also through a real-time task list which Vestmark maintains for each end user of the platform.
Portfolio rebalancing and tax optimization
Vestmark provides tax optimized portfolio rebalancing support for managing:
- Strategic asset allocation: Vestmark ensures that each client account tracks the desired asset allocation. When an account drifts beyond a configurable threshold of acceptable deviation, the over-weighted asset class (or sleeve) is reduced and cash is shifted to the under-weighted sleeve. This is done while adhering to any client or firm restrictions.
- Tracking to model: for each sleeve within an account (or one sleeve if it's a single-style separately managed account), Vestmark creates the necessary buys and sells to have the account track the percentage weightings of each security in the model. This is done while adhering to any client or firm restrictions. The recommended trades are available for review and approval prior to execution.
Reporting and performance measurement
Vestmark provides a series of management, operations and quality control reports, as well as client-level performance reports and AIMR-compliant composites.
Management reports span all products and sponsor relationships, providing immediate answers to questions such as:
- How many accounts were opened last month across all sponsors?
- How many accounts were closed?
- What were net asset flows last month, last quarter or last year, and are the flows increasing or decreasing over time?
- Who are the top financial advisors in terms of accounts or assets?
- What is the top selling product?
- How many accounts are below the required minimum?
- What were the investment returns for a particular product and for all the accounts tracking that product?
Operations and quality control reports allow back office administrators to track new account opening requests, the status of trades, outstanding exceptions, and any account outliers (for example, by performance or cash level). In addition, Vestmark maintains an audit trail of all account activity.
Vestmark also provides account- and product-level performance, including AIMR-compliant composites. As part of this, account-level performance drift is calculated along with a series of "drift factors" for assisting in determining the cause of account drift.
Reports are web-based and delivered through an interactive environment which allows users to drill-down to detailed information, run new reports, generate graphs, generate PDF documents, and download data to a spreadsheet. Reports are generated from an open, relational data warehouse which can serve as an integration point with other enterprise reporting systems.
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