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New Technology and Partnerships

As we approach the 20th anniversary of the multi-strategy TAMP, it is a good time to reflect on how far we have come and what we still have left to do.

Since 1996, our small band of disrupters has been on a mission to change the way advisors do business. We have brought about change by providing advisors with one-stop access to multiple asset allocation firms. This has dramatically improved advisors’ flexibility in guiding asset-allocation decisions for their clients.

In the early years we and a few other zealots — most notably Loring Ward (then known as RWB) and SEI — had been trying to convince advisors and broker dealers that fees were not a fad, but the way of the future.  A few listened — notably Todd Robinson, who after a meeting with Brian O’Toole and me immediately set out to build an in-house platform, SAM, giving LPL a huge head start on advisory that they have continued to monetize. Other BDs tolerated their early adopter “brokers” working with one of our firms, though they still believed the commission model would continue its dominance.
After those initial successes, it was time to take the process to the next level.

Brian’s core idea was that we had to give advisors multiple choices as to the style of allocations available for portfolio construction. This variety would provide not just diversification benefits but also longevity for our own platform. The genius behind the multiple strategists offering would later be confirmed as advisors would be able to shift allocations among different managers rather than lose business – for them or for us.

AIMS, our first multi-strategist offering (which became AssetMark, then GenWorth, and is now AssetMark again), set the standard and became the model for all the existing platforms today. Sure, a few holdouts have survived as standalones (Loring Ward with its fantastic service and dedicated investment processes). But even the holdouts can be found headlining several multi-strategist offerings. Clearly we had struck a great balance: give advisors and their clients a choice, coupled with technology, a storyline around diversification and not only will you raise more assets but those assets will also be stickier.
From then on, it was game on. Soon AssetMark lookalikes would spring up, everywhere. Dean Cook here at FTJ FundChoice and James Guy at Cambridge are the most notable examples of successful platforms utilizing this formula.

Over the years other models surfaced, many attracting lots of attention. The most publicized was the idea that SMA were going to replace funds in the advisor toolkit, and Lockwood had more written word per dollar raised than any idea then or since. While Lockwood still operates underneath the corporate shell of Pershing, it too is now partly a multi-strategy offering. The biggest “new thing” to actually stick was Assetmark’s release of ETF Strategist in 2002. The “EFT” (I can’t tell you how many advisors called them that) lent itself to the multi-strategy model thanks to its cost profile and the specificity it provided. The field is now crowded with hundreds of ETF strategists clamoring for access to platform exposure.

All in all, the progress has been substantial. The model is thriving.  Envestnet has built the piping for most BDs to offer their own versions of the multi-strategy offering. Coupled with a rep-as-manager program, this is BDs’ preferred model to both serve advisories and potentially raise recurring fees for their enterprises.

While the process is now in more places than ever, it has not evolved much. Most platforms are very similar to the one we released in 1996, albeit with technological advances. Many are delivered through a UMA, and some even provide advanced paperwork options for opening accounts and reporting. However, the investment structure — the actual client deliverable — is, with the addition of ETF strategies, still the same. The offerings consist of multiple investment firms with a range of models up and down a client risk frontier. Usually lumped into either strategic or tactical groups, each model meets the risk criteria established by a client survey and contains either proprietary funds, ETFs, or a wider list from which the strategist may choose while executing manager decisions.  Advisors implement by selecting one or more of these models based on the size of client assets. The main attraction still remains: Advisors can still move among quality firms if and when the need for change arises. Working off the age-old principle that “allocation drives return,” most advisors look for some combination of strategic and tactical models.

Several years ago at Genworth, we decided that more diversification of strategy style could help advisors create a better mix, which led to the now well known “four-box” approach, segmenting models not only by portfolio construction (strategic vs. tactical) but also by potential results (market-linked vs. absolute return).

This further segmentation was a step in the right direction, but refinements are still necessary. Advisors need to know how one strategy fits with other strategies from a risk budget perspective. There is also a need to reduce overlap in strategies. The tendency for advisors to continue to pile on similar types of risks works against the whole point of strategy diversification. Finding truly non-correlated investments to build more evolved portfolios is of paramount importance. A whole category of Diversifiers is nonexistent in the traditional TAMP model. Reaching beyond the typical strategist – TAMP relationship to find, qualify, and offer these types of strategies is the next frontier of the business.

Since 2008, significant talent has begun to migrate from the traditional hedge fund world to the mutual fund arena. Seamless integration of these Diversifiers is the next step.

Change is now here:  Within weeks FTJ FundChoice will begin to offer an approach we believe maximizes the tools available for our advisor base. By combining the tech platform of the UMA with the oversight offered through our new partnership with Rocaton Advisors, we will offer our Three Mandate approach to portfolio construction with emphasis on the selection, scoring, and monitoring of Diversifiers to complement client portfolios. We believe that the addition of this third sleeve to the traditional beta and tactical portions will result in a more durable offering. We know that separation of these three distinct factors will improve client clarity. Once an advisor is able to discuss specifics about a strategy’s role in what are sure to be increasingly volatile markets, the conversation becomes less about past performance and more about a clear path toward success.

It is great to look back. The journey has been interesting, and I believe we have really made an impact since our little group began it all almost 20 years ago. But there is much yet to be done, and the next step is right in front of us.

Gary Manguso, Vice President – Product Strategy for FTJ FundChoice, has been working with advisors to help them implement fee based investment decisions for over 20 years. As one of the founding team at AssetMark, and having built offerings on the Envestnet platform, he has specialized in delivering the TAMP offering and has been a key figure in the growth of the model since its inception.