Specialized and scalable

Specialized and scalable

by David Kitai, Wealth Professional Canada, March 2020 (Issue 8.03)

Anne Tardif of Croesus tells WP how a unified managed account strategy can help advisors grow business by eliminating operational inefficiencies.

Specialization is a watchword for today’s investment advisors and portfolio managers. Every client comes with their own set of demands, and the range of investment products and strategies seems to grow almost every day. A ‘one size fits all’ approach can’t sustain an advisory practice anymore.

That’s the dilemma Montreal-based fintech firm Croesus set out to address by adding integrated unified managed account (UMA) and unified managed household (UMH) capabilities into its popular advisor platform., explained why the firm has integrated these strategies and expanded their capability to meet a growing need for specialization.

“The UMA approach enables a portfolio manager to split an account into sleeves,” explains Anne Tardif, Croesus’ business product manager. “If you have a Canadian unregistered account, you can assign that account to three different external managers. One will manage fixed income, the other one can manage Canadian equity, and the other one might manage the international equity. Instead of opening three accounts, you can use the same account and split the account into three sleeves. This enables the PM to save on costs because they don’t have to open three accounts.”

UMH strategies allow for a different approach, Tardif adds, enabling managers to provide tax optimization strategies for their clients. Considering that a UMH portfolio includes different account types, it could be more efficient to buy certain types of financial instruments in the appropriate account.

Tardif and the Croesus team integrated this strategy into their platform in order to meet the needs of modern PMs, who are fielding more questions than ever from increasingly informed investors. This strategy, Tardif explains, allows an advisor or a PM to let specialists handle the investments within the accounts while maintaining the core relationship with their client.

When overseeing a UMA strategy, PMs and advisors can use Croesus to measure the performance of each sleeve and each of their sub-managers, shifting more resources into better-performing sleeves and replacing underperforming managers. The Croesus platform allows for necessary changes to be made quickly to maximize performance.

In the five years since Croesus launched UMA functionality, it has added new features to meet ongoing industry demand. Integrated within the platform is a smart rebalancing algorithm that suggests new purchases for a PM to stay on target. But because each client is different, Croesus has integrated custom constraints. Now a PM can make sure that a client doesn’t buy large stakes in the company they work for, for example. When a client transitions from an RRSP to a RRIF account, the algorithm can integrate the required withdrawals into its rebalancing calculations, keeping aside the money that needs to be withdrawn. The exclusionary feature allows for ESG integration in UMA strategies, too, giving PMs the ability to exclude certain companies, or even whole sectors, that don’t mesh with a client’s investment values.

Historically, UMAs have been a strategy for managing high-net-worth investors – it’s easier to sleeve off investments from one account when the core account pulls from a vast pool of resources, after all. The benefits might not seem as obvious for an advisor managing clients with fewer assets, but Tardif believes they’re there.

“I think it’s a very good way to be structured,” she says. “It’s an approach structure to manage all your portfolios. All your clients can be managed the same way. It’s then easy to rebalance almost all your clients at the same time. This will enable advisors to focus on growing their business, because everything is structured and scheduled.”

That helps an advisor refocus on seeking more clients, bringing in new money and developing better relationships with existing clients, she adds. And the system is scalable – it organizes, tracks and rebalances clients’ investments, no matter how big an advisor’s book grows. In fact, Tardif says, it functions better with a bigger book and offers a clarity that compliance departments love.

“For example, if you have 1,000 clients and you have 1,000 UMA accounts for those clients, you can deliver international equity to all of those clients and rebalance each of their strategies with a few clicks,” she says. “We can regroup all the same orders to submit them as one block order. This way, all the portfolios trade at the exact same average market price and meet the clients’ equity needs.”

This is Croesus’ ‘have your cake and eat it too’ solution: UMAs allow PMs and advisors to specialize their investment solutions while scaling their businesses. They can grow their own AUM as they grow their clients’ money within sleeves. Compliance can be kept happy, and strategic moves can be made in an organized, structured way.

Today, many advisors are positioning themselves as holistic financial planners, and Tardif and the Croesus team maintain that a UMA strategy on their platform can better facilitate this role. But there’s still a place in the UMA strategy for advisors who prefer to function as stock pickers.

“When you want to focus on the relationship with all your clients or focus on developing your business, then you should shift your accounts into this this model,” Tardif says. “You do not have to micro-manage – you just need to look at your portfolio and make sure the relationship with your client goes well. In terms of asset allocation, you just need to assign the UMA sub-accounts at the desired targets for each of the external managers and focus on what we call overlay management.

“If you’re very good at stock picking or analyzing all the fundamental or technical details of security,” she adds, “then a UMA can set you up to do this. If you’re good at managing relationships, just manage relationships and try to bring in new money.”


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