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8 CONNECT | SUMMER 2014

Abundance can be a mixed blessing. Take assetmanagement firms, one of the fast growingsegments of the financial services markets in

terms of both the number of fund strategists and thevolume of assets they manage. Not so long ago, financialadvisors could perform their own due diligence – get toknow the strategist, peek under the hood, ask some in-sightful questions. Today, the sheer number of choicesmakes getting to know them all nearly impossible.

“Too many choices can create confusion,” said TimClift, managing director and chief investment strategistwith Envestnet. “More advisors are becoming assetmanagers rather than portfolio managers, meaning theyaren’t picking every aspect of the portfolio. They wantto be managers of managers instead of stock pickers.”

Technology has enabled that shift, allowing assets to bekept separate for registration purposes but combined for

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reporting purposes, said Andrew Stavaridis, managingdirector and head of relationship management forEnvestnet.

“In the past, advisors who used different fund strategistswith a single client had to set up each asset class undera different registration,” he said. “Using today’s UnifiedManaged Account approach, advisors can populate theportfolio with different managers in sleeves within oneaccount. More importantly, they can change out theasset manager for each sleeve without unwinding thewhole account. It makes conversations with clients andthe actual processing of accounts much easier.”

For advisor Rob Santoriello of Rios and Associates inFolsom, Calif., providing fee-based services to clientsinvolves three key areas: the inclination to manage as-sets, the expertise in evaluating asset managers and time.

“The biggest of those is definitely time,” he said. “Ifyou’re growing your practice, it’s hard to be a holisticadvisor to your clients and also manage the assets. Inour view, the asset manager may not have any directcontact with clients. The clients hire me to do the duediligence on the asset managersand select the asset managers thatbest fit their needs.”

Outsourcing the management ofassets lets Santoriello tap abroader base of expertise than hecould achieve on his own.

“Every asset manager is different,” he said. “Whenyou’re dealing with large sums of money, it’s hard to finda single solution to meet your client’s needs for the longterm. I prefer to find multiple solutions from managerswith different areas of expertise.”

At the suggestion of his registered investment advisoryfirm, Securities America Advisors (SAA), Santorielloreached out to Envestnet for help in defining hisapproach to selecting asset managers. By bouncing ideasoff each other, Santoriello and Envestnet’s in-house analystsdeveloped models using managers available on SAA’sManaged Opportunities program.

“I tested my own theories and ideas regarding differentrisk tolerances and account sizes against the people atEnvestnet, and then we finalized an approach,” Santo-riello said. “Several of the models have six or seven dif-ferent asset managers, so having access to a UMAapproach made implementation that much easier.”

The number of asset managersSantoriello uses is fairly typical,said Envestnet’s Clift.

“No one does everything great,so to think one or two fundstrategists can satisfy everyclient’s need is inaccurate,” hesaid. “Even with all the differences, though, most suc-cessful advisors don’t need 50 asset managers. Mostgravitate toward six to eight, and if they have access tothe UMA structure, switching managers is easy. Be-cause the agreement is between the fund strategist andthe RIA firm, not the fund strategist and the advisor,an asset manager change doesn’t require new paperworkunless the client suitability changes. Repapering is scaryfor advisors, because it opens the potential for the clientto consider another advisor.”

For SAA, Envestnet’s expertise in performing deep duediligence on asset managers and assembling a broadspectrum of styles and sectors helps narrow the rapidlyexpanding list of contenders for its Managed Oppor-tunities program.

“Less than a decade ago, almost all asset managers useda strategic, buy-and-hold style,” said Dennis King, sen-ior vice president of business development for SAA.“With the creation of dynamic and tactical styles, it be-came harder for RIAs to analyze those managers. Thosestyles are more complicated, and the managers don’twant to give away the trade secrets behind their analy-sis. Envestnet has taken a new approach by furnishingresearch on fund strategists.”

Again, technology makes all the difference. Kingnoted that SAA’s Managed Opportunities system au-tomatically analyzes portfolio sleeves for overlaps insecurities or overweighting in an asset class – in short,

SUMMER 2014 | CONNECT 9

Tim Clift

Rob Santoriello

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helping advisors determine which asset managers gobest together.

With the ongoing wave of baby boomers needing complexportfolios designed to last through their retirement,asset management firms will likely continue to prolif-erate. Advisors can meet those demands with the rightcombination of resources:

Access to an integrated asset management platform.Whether you plan to manage assets yourself or out-source to third-party firms, you need a system that allowsyou to combine asset types into a single big picture foryour clients. The days of manually updating spread-sheets to create reports have vanished, in no small partdue to regulatory scrutiny. The Unified Managed Ac-count approach leads the indus-try in ease of reporting andcommunicating with clients,and makes it easy for advisors toswitch asset managers for a por-tion of the portfolio.

Third-party research and in-sight on asset managers. Youcan’t be an expert on every asset management style, sec-tor or asset class. Just as you may have relied on third-party research on individual securities in the past, younow need a reliable source of information on assetmanagers to confidently select the six to 10 you wantto work with regularly.

Help assessing the best combination of assetmanagers for clients’ goals and suitability. Consoli-dated reporting lets you more easily communicate withclients about their portfolio, but analytical tools thatidentify overlaps or overexposure will save you evenmore time.

“We’re really on the verge of a whole new era of assetmanagement,” said SAA’s King. “Advisors who embracethe idea of managing a selection of asset managers onbehalf of their clients have a solid model for building abusiness that can serve those clients for decades tocome.”

10 CONNECT | SUMMER 2014

“Using today’s

Unified Managed Account approach,

advisors can populate the portfolio

with different managers in sleeves

within one account.”

- Andrew Stavaridis

Andrew Stavaridis

For ideas that will enable you to meet the varying demands ofyour clients as your practice grows, turn to page 45 to downloadthe white paper, “How to Build a Scalable Foundation forGrowing Your Advisory Practice.”

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