Smith Barney Consulting Group, New York, debuted Integrated Investment Services, an innovative, proprietary unified managed account platform last October that allows captive Smith Barney financial consultants to see the bigger picture. The platform lets them look broadly across their high-net-worth and institutional clients' investment holdings.

Five months hence, the firm has seen both benefits and challenges to that new capability. For the first time, Smith Barney reps can now combine data for each client's many separately managed accounts along with their individual mutual funds and exchange-traded funds (ETFs), all in a single screen right on their desktop PC. Before, reps had to juggle and track multiple client accounts. According to Smith Barney executives, approximately 50% of those who own managed accounts through the firm are also invested in ETFs and mutual funds.

The new unified account platform is product-neutral and can include 70 different separate account managers across 140 investment styles, 170 no-load mutual funds, all available ETFs, and all of the mutual funds currently available under the Smith Barney TRAK wrap program.

Much Talked About

While Smith Barney claims to be the only wirehouse to have thus far completed the development of such a platform, unified managed account envy is rampant on Wall Street.

Smith Barney's "unified account system is very much talked about in the industry, and it is very much the way that the industry is going," said Matt Schott, senior analyst, retail brokerage and investing at the TowerGroup of Needham, Mass. Where a client wants to add an additional investment, or desires to harvest a tax loss, a unified account makes it much easier for the brokerage consultant to look across all investments to make those kinds of decisions, he added.

Moreover, it makes perfect sense that Smith Barney would be the first wirehouse to develop such a platform, analysts agreed. Smith Barney, whose earliest managed account program dates back to 1973 through an acquired firm, was the pioneer of the multiple disciplinary separately managed account (MDAs). MDAs have since become pretty much mainstream in the industry, Schott said.

"We developed this system, hoping to get a jump on the competition. But we soon realized that we were the only one in that race," said John Pratt, SVP and director, systems development at Smith Barney Consulting Group. While Smith Barney's wirehouse competitors have hinted at developing such as system, none has yet emerged.

Smith Barney executives point to the depth of resources that it tapped, in order or go live with the system within seven months of hitting the accelerator. In the summer of 2002, Smith Barney reviewed all possible outside vendors, but ultimately chose to develop the system 100% internally, Pratt said. That decision to build, not buy, required the fusion of 46 different systems across the company, and the efforts of close to 100 programmers. It took another nine months to fully integrate the system.

But it is still a work in progress. Smith Barney expects to add additional products to the platform. Next to be added, sometime later this year, will be hedge funds-of-funds, and load-waived A shares of mutual funds, as well as other proprietary mutual funds. Annuities or private equities may not become available because of the peculiarities of each.

Rebalancing Act

Financial consultants at Smith Barney have begun embracing the new platform, first made available to them in November. Most are realizing that the system can save them time and effort in both opening accounts with a single data entry and periodically rebalancing assets where allocations have fallen out of whack, said Norm Nabhan, managing director of the Smith Barney Consulting Group.

Overall, $900 million now resides within this new unified account platform, 84% of which has been added through the establishment of new relationships with clients, Nabhan said. Going forward, Smith Barney will work with its financial consultants at the end of every quarter to migrate more clients over to the new system. There is a learning curve for reps, the executives admitted. The other challenge is that such a migration requires that clients sign a brand new contract with the firm.

One benefit is the system's built-in compliance monitoring functionality, another first for wirehouses, which allows for a look across the totality of client assets. Using this global scope, the unified system can automatically red flag problems for reps, such as when a client's previously agreed-to allocation to a particular asset class has exceeded, or is approaching, a cap. That red flag then compels the rep to contact the client to further discuss overall investment strategy and potential allocation changes, Nabhan noted.

But the system was built with a fail safe to be sure the rep follows through. If a financial consultant fails to resolve the red flagged item within 30 days, Smith Barney personnel will send the client a letter directly.

Asset allocation and rebalancing was something that was previously left up to financial consultants to handle on their own when they sat down to review their clients' holdings. But in many cases, figuring out whether allocations were right on the money or needed adjusting required a significant amount of time and many multiple calculations. The unified account system tracks allocations daily and includes a built-in calculator. "What we have done is make our financial consultants more efficient," Nabhan said.

To the firm's benefit, Smith Barney executives are finding that their novel proprietary platform has become a bargaining chip they can use to attract highly productive and profitable reps and teams of reps looking to move from other firms. "Everyone talks about how little time they have. This does a lot of things for them," Nabhan said.

Smith Barney plans to migrate over to this new platform those financial consultants who are part of the firm's Guided Portfolio Management group, along with reps who manage money themselves on a discretionary basis. In addition, the firm plans to transfer over all institutional clients within its Fiduciary Asset Management group, whose assets top a collective $4 billion and who must agree to have their assets custodied with the firm.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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