NEW YORK - No software platform for separately managed accounts is without its limitations. None can handle the multiple products that advisers and clients want to tether, and all use different interfaces, forcing SMA execs to turn to the archaic means of faxes, messengers and mail.

And while some platforms may be able to benchmark holdings against indexes, they might do a poor job of reconciling trades. Some may do a terrific job at minimizing taxes but fail to handle multiple currencies. Still others may make it easy for the legal team to do due diligence but are unable to take standing orders. And so it goes.

"It's only a matter of time before someone gets it right with a complete end-to-end solution," said Bob Hollinger, a partner with Barrington Partners of Boston, speaking at The Money Management Institute's fall conference. "No total solution exists," agreed Chuck Widger, CEO and president of Brinker Capital of King of Prussia, Pa., who chaired a session on next-generation managed account platforms. "Outsourcing firms and technology vendors are addressing the need for specialization, efficiency, better margins and improved functionality," Widger said. But they have a long way to go.

Open Communication

The most vital feature SMAs want from platform providers is an open, Web-based architecture that would allow investors, advisers, sponsors, managers and custodians to communicate electronically. This continues to be one of the most critical issues facing the managed account industry.

So far, sponsors and managers have begun a dialogue on this issue, but because the responsibility for creating a set of standards is shared between them, it has yet to be determined who should lead the way or shoulder the bulk of the cost (see MME 9/1/03). However, National Securities Clearing Corp. is seeking approval from the Securities and Exchange Commission to automatically link trade orders and clearance and settlement systems in the SMA industry (see MME 11/3/03).

Secondly, SMA platform providers also need to be able to support not just managed accounts, but multiple-discipline accounts, mutual funds, wrap programs, annuities, insurance and fee-based brokerage accounts - along with whatever new products and services that Wall Street is so adept at creating. As Baby Boomers begin to retire, for instance, one whole new set of products might be designed to optimize money in retirement, said Paul Schaeffer, a VP with SEI Investments of Oaks, Pa.

"Advisers are under a lot of pressure to deliver results and, as a result, need an open-architecture platform" that will allow them to select the best investment vehicle for their clients, said Jim Patrick, a managing director with Pimco Advisors of Newport Beach, Calif. That vehicle may not always be a separately managed account, he added.

In line with SMA platforms beginning to combine various products, they will need to be able to create consolidated statements. "We constantly see clients with assets in numerous vehicles," Schaeffer said. "They want a platform to put all that together, built from a notion of risk management and bundled like Total Merrill.'"

Perhaps the next most critical feature, speakers said, is being able to provide customization both for investors and advisers, including any restrictions or permissioning levels they might want to put in place.

"Managed account providers are under increasing pressure to offer financial wellness and assess clients' individual risk," Schaeffer said. That means looking at the whole variety of individual risks an investor may carry - whether that risk may be not having enough money to retire, not having a sound estate plan, a poorly diversified balance sheet or credit, or inadequate funds to send a child to college, Schaeffer said.

To be able to alleviate these risks, advisers need a wealth management platform that can perform "automatic analytics, tax sensitivity and rebalancing," Widger said. Or, as Hollinger put it, multiple investment disciplines per investor.

While SMA platforms will one day offer all of these functions, Hollinger said, "It will be a while before all these pieces come together."

Copyright 2003 Thomson Media Inc. All Rights Reserved.

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