Technology Requirements for Separately Managed Accounts

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Technology Requirements for Separately Managed
Accounts

• NICSA Managed Accounts Conference
• September 25, 2003

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The Agenda

• Introductions
• Managed Account Technology
• Panel Perspectives
• Current Use
• Evolving Needs
• QA

3
The Panel

• Hunter Luke, President
• Professional Planners, Inc.
• Dan Penrose, Product Manager, Brokerage Services
• SunTrust Securities
• Stephen Lee, Managing Director, Chief Operating
  Officer
• Logan Capital Management, Inc.
• Bob Hollinger, Partner
• Barrington Partners

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Managed Account Technology

• The Role of Technology
• Recent Product Evolution
• Requirements
• Solutions
• Backtesting
• Conclusions

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The Role of Technology

• Drive labor and operating costs out of product
  delivery
• Provide seamless and timely service delivery to
  sponsors, money managers, advisors and investors
• Facilitate account portfolio administration

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Recent Product Evolution

• Lower investment minimums
• Investor-specific customization restrictions
• Multiple investment disciplines per investor
• Timely, integrated holdings views
• Consolidated monitoring and reporting
• Tax awareness sensitivity

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What is required to deliver a seamless end-to-end
managed account product?
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The Separate Account Technology Environment
Interfaces
Pricing Services
Administration
Analytics
Account Setup and Administration
Custodians
Rebalancing
Aggregation Services
Tax Optimization
Asset Allocation Setup and Administration
Corporate Actions
Performance Analysis
Investment Model/Style Setup Administration
Research
Reporting
Investment Recommendations
Trade Order Management
Portfolio Accounting Engine
Account Detail
Trading
Reconciliation
Barrington Partners Confidential
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Functional Requirements

• Portfolio Accounting
• Account Administration
• Asset Allocation Administration
• Investment Model Administration
• Analytics
• Rebalancing
• Tax Optimization
• Performance Analysis
• Multi-Language
• Multi-Currency
• Multiple Disciplined Accounts

• Compliance
• Standing Orders
• Reporting
• Trade Order Management
• Workflow Management
• Reconciliation
• Pricing
• Benchmarks/Indices
• Custodians
• Aggregation
• Corporate Actions
• Research
• Trading

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How do current vendor offerings align with these
requirements?
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(No Transcript)
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Can technology facilitate investment management?
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Performance Backtesting

• Case 1
• Institutional sized portfolio
• 14 months of data
• Reduced market risk by 10 (standard deviation
  fell from 24.3 to 21.9)
• Annual compound return increased by 50 bps
• After-tax savings of 8

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Performance Backtesting

• Case 2
• 14 months of data
• System free to deviate from investor model
• Pre-tax returns increased 1.5
• After tax returns increased .8

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Conclusions

• There is no current total solution
• Vendors are addressing functionality gaps
• Technology is able to approximate portfolio
  manager investment performance
• Analytics, rebalancing and tax optimization
  contribute to improved portfolio performance
• Recent enhancements support multiple disciplined
  accounts and overlay management

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• 20 Park Plaza, Suite 478
• Boston, MA 02116
• [phone]
• [phone] - Toll Free
• [phone] Fax
• www.professionalplanners.com
• Hunter S. Luke, President

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Who We Are

• A wealth management advisory firm offering
  investment counseling, portfolio design,
  securities management and other financial
  services in a family office setting.
• Our clients are professional athletes,
  entertainment personalities and other high net
  worth individuals referred by us by various
  advisors and existing clients around the country.
  

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Our Objectives

• Develop long-term client relationships built on
  trust and confidence
• Deliver the best available advice, solutions and
  service to any financial need
• Keep our clients informed and educated,
  maintaining their involvement throughout the
  ongoing financial planning and investment
  management process
• Provide our clients the peace of mind that
  enables them to focus on their careers

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Our Business

• A small client base but a fairly sizable asset
  base.
• Total Households Served - 35
• Assets Under Management - 80,000,000
• Staff - Myself and One Assistant

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Our Approach

• Technology has allowed us to remain small yet
  still offer comprehensive services
• Our small size requires us to rely extensively on
  the back-office support provided by our
  independent broker-dealer, Commonwealth Financial
  Network, several third party providers and other
  business affiliations

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Our Offering

• Started offering SMAs in 1998 after two years of
  extensive research of all the independent
  providers
• Selected Lockwood Financial as our only SMA
  provider

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Our Platforms

• Separately Managed Accounts Lockwood Financial
  (exclusively)
• Commonwealth Financial Network (CFN)
• Individual Funds
• Individual Securities
• Direct Investments mostly private placements
• Life Insurance and Annuities Direct (CFN CFN
  Insurance Group)
• Managed Accounts, Funds SMAs (available but
  not used)
• Managed Accounts Funds SEI (SMAs available but
  not used)
• 529 Plans Direct with several mutual fund
  management firms.
• Other (Trusts, Hedge Funds, Estate Planning,
  etc.) various third party providers

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SMA Features Used

• Introduction and educational material
• Currently updated manager research and analysis
• Capital Markets Research
• Portfolio design tools
• Investor Presentations
• Application and other paperwork processing
• On-Line account access and monitoring (advisor
  client)

Provided by Lockwood website and Advisor
Workstation
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SMA Features Used, contd

• Tax lot access and client tax reporting
• Statement delivery and customized investor
  reporting tools
• Portfolio Analytics
• Back-Office support communication changes,
  transfers, distributions
• Account customization and manager communication
• Practice management assistance

Provided by Lockwood website and Advisor
Workstation
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Desired Enhancements

• Tax Efficiency Across Individual Managers
• Addressing Overlay Issues other than manually
• Asset Allocation and Consolidated Reporting
• Cross Platform Integration
• Access to everything at Lockwood or elsewhere
• Issues with Broker-Dealer competition
• Training and awareness of the technology
  available

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• SunTrust Securities
• 1 SunTrust Plaza
• Atlanta, GA 30302
• [phone]
• www.suntrust.com
• Dan Penrose
• Product Manager, Brokerage Services

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Overview

• SunTrust Bank is the Nations 9th Largest Bank
  Holding Company.
• SunTrust Securities is the Bank Brokerage Unit
• Over 16 Billion in Assets and _at_ 160 Million in
  Revenue in 2002
• 420 Brokers from Baltimore to Miami. Launched
  New PFA initiative in 2002
• Major current emphasis on Recurring Revenue and
  Insurance.

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Overview, contd

• Launched Investors Premier in August of 2002
• July 2003 60 Million in Assets Under Management
  (pure Separate Accounts)
• Average separate account - 200,000
• Average portfolio account - 900,000
• 150 of 420 Reps authorized to sell Separate
  Accounts. 30 of those have
• 3 External and 3 Internal Wholesalers
• Use ADVISORport platform to administer the
  product

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Technology Facilitation

• Core technological competency of provider was
  critical for speed to market. Quick access and
  economies of scale with Money Managers
• MSA products suit core target market for many of
  our reps. As knowledge and focus continue to
  shift, MSA will be key to future growth
• Web enabled platform has allowed for consistent
  program delivery across geographically diverse
  footprint
• Sales cycle is compressed by standardized process
  and procedures

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Technology Facilitation
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Desired Enhancements

• Facilitation of Proxy Voting and Re-org Notices
• Paperwork Consolidation
• NRA opportunity remains untapped due to
  regulatory deficiencies
• Expand open architecture of MSA products to
  continue to tap downstream market

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• Logan Capital Management, Inc.
• One Liberty Place, Suite 5200
• Philadelphia, PA 19103-7301
• [phone]
• www.logancapital.com
• Stephen Lee
• Managing Director, Chief Operating Officer

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Our Firm

• Established in 1993 to serve institutional
  private investors
• 100 employee owned
• Highly attentive client service
• 1 billion in assets under management
• Offer two disciplined equity styles Growth and
  Value
• Fixed income team provides customized solutions
  based on each clients needs
• Open architecture - many custodians, many brokers

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Our Team
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Key Decisions

• Success goes beyond technology
• Level of customization
• Consistent execution
• Centralized decision making and trading
• Teams v. individual managers

Logan Growth
Logan Value
Order Execution Operations Team
One point of contact for operations
Brokers Custodians
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Key Vendors

• Advent software (Axys, Rex, Moxy, Qube)
• Central location for client data that can
  communicate with other services
• Baseline, Excel
• Checkfree APL
• Provided by some plan sponsors
• We mirror information in Axys to produce
  consolidated performance and trading information
• Internal databases for billing, workflow

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Our Data Flow
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Information
Instant Heads up exception reports
All resources available via VPN
Client information linked with portfolios
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Daily Reports

• Sales
• Accounts gained
• Additions
• Goal progress
• Portfolio management
• Additional funds
• Daily activity
• System status

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Desired Enhancements

• Electronic trading links across all of our
  brokers
• Automated reconciliation
• Making progress but not quite there yet.

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Questions to the Panel

• Do you currently support extensive
  investor-specific portfolio customization and
  restrictions?

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Questions to the Panel

• Do you expect the demand for individual
  customization to change in the future?

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Questions to the Panel

• Are hedge and mutual funds major components of
  your managed account offering?

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Questions to the Panel

• Do you expect globalization (multi-currency,
  multi-language, country specific reporting tax
  functionality) to become more important over
  time?

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Open Discussion Q A