In another sign of model portfolios' growing popularity, Fiserv Inc. has introduced a communications infrastructure designed to better transmit models between asset managers and clients, including bank trust departments.
Fiserv's Model Information Exchange lets investment managers send information at one time, in a standardized format, to multiple sponsors who then can act on the suggestions. Investment managers typically send portfolio updates daily.
"The need for an efficient means to send models across sponsor programs, track changes and track model rotation is critical as these programs gain momentum," said Cheryl Nash, the senior vice president, strategic marketing and business development, in Fiserv's investment services group.
The technology saves time and reduces the possibility of human error, she said. Instead of sending, say, a set of instructions separately to 10 sponsors, the instructions can be loaded and sent to all the sponsors at once. That lessens, for example, the possibility of a sponsor's getting instructions too late to act on them, she said.
Such risks of human error currently abound as information is passed among asset managers and sponsors via phone, e-mail or spreadsheet, then is entered manually into modeling systems, according to Fiserv.
Model Information Exchange is accessible through Fiserv's Model Management Solution tool, which is integrated with the Fiserv trading platforms for separately managed and unified managed accounts.
An increasing number of bank trust departments have been adopting investment management that includes a model-only option within unified managed accounts. This approach is intended to provide tax benefits and better asset allocation.
The model portfolio business is growing quickly; according to Cerulli Associates, 84% of asset managers now offer model portfolios, up from 50% in 2006.
The Boston research company says separately managed accounts — used for large-cap, domestic investing strategies — are the biggest distribution opportunity for asset managers within unified managed accounts. Unified managed accounts can also contain mutual funds, exchange-traded funds and alternative investment products.
Cerulli predicted that clients who fled traditional separate accounts in 2008 may reenter the market in unified managed accounts. This could push account balances higher than the current average of $271,000, it said.
"I do think the increase in the model-only programs will continue," said Nash. "It's a great benefit to the sponsor from an operational and expense standpoint, and it allows the manager to focus on growing assets."
Fiserv's offerings in UMAs and model portfolios are important since the company is the largest player in managed accounts, said Todd Smurl, an independent consultant for wealth management firms.
Smurl called the Model Information Exchange "a logical progression of services by an overlay technology vendor" aimed at helping clients develop increased use of model portfolios. Smartleaf, a technology firm in Cambridge, Mass., where Smurl was once an executive, has marketed a similar service for about a year.
Fiserv, which is based in Brookfield, Wis.; Vestmark in Wakefield, Mass., and Smartleaf are three technology leaders in the unified managed account business, according to Logan Allin, a senior vice president for wealth management at City National Bank in Beverly Hills. "They've realized most people want to go 'models-only' these days," he said.
The technology is relatively new, and each company's offering has strengths and shortcomings, said Allin, who is installing unified managed accounts at City National. His bank is likely to pick one of the three providers he named as a partner, he said.
Fiserv developed its Model Information Exchange in part to give trust departments and other clients a simple way to add managers to their open architecture programs, said Nash. If the asset managers use the same network, all the trust business need do is add the firm to the lineup, she said.