Nearly 80% of wealth managers plan to expand open-architecture strategies using third-party products in the next two to five years—and this trend could change the industry in fundamental ways, says Ernst & Young in a new report.
Not only will the annual product review become more popular as a way to evaluate risk, but more wealth management firms will invest in advisor desktop tools for client reporting, according to the Ernst & Young report, “Investing in the future: 2011 U.S. wealth management study: a focus on product and client trends.”
“As firms continue to rely on third-party products, the annual product review will continue to be an important tool for firms to ensure their products are best in breed and are performing as expected,” said Anthony Caterino, a partner in Financial Services at Ernst & Young. “Additionally, the ability to integrate these products into the advisor’s tools and the client portals, and provide timely and accurate reporting will continue to be a critical for wealth management firms.”
One such open-architecture technology firm, Smartleaf, is riding this third-party trend. The Cambridge, Mass.-based firm founded in 1999 has grown to more than $50 billion assets under management from $10 billion in the last two years by selling its “unified overlay platform” as a way for wealth managers to make customized portfolio management cheaper.
In other words, the average investor can now get the same advantages that high net worth clients have been getting for years.
“We have made it possible to greatly broaden the deliverability of this,” said Smartleaf Chief Executive Jerry Michael. “It’s as if everybody had a full-time portfolio manager who spent their whole day doing nothing but managing that person’s portfolio. We can do this because we have automated much of the customization.”
About 50 RIA, broker-dealer and bank trust clients now use Smartleaf’s system, including U.S. Bank, DA Davidson, Comerica, BB&T and BBVA Compass.