Washington Trust Co. in Westerly, R.I., says converting its three wealth management businesses to an overlay management model could smooth the way for future acquisitions of advisory firms.
"We're trying to create an infrastructure that allows all of our investment professionals to deliver the broadest range of investment capabilities to our clients," said Galan Daukas, the executive vice president in charge of wealth management at Washington Trust.
His company will start offering model portfolios, which will include both proprietary and third-party products, to all its wealth management customers.
The conversion, set to roll out early next year, will make it easier to integrate acquisitions and to Washington Trust to offer investment products and services from acquired advisers to its current clients, and vice versa, Mr. Daukas said.
In 2000 the 208-year-old company bought Phoenix Investment Management of Providence. Five years later Washington Trust bought Weston Financial Group, a registered investment advisory firm in Wellesley, Mass.
At the end of September, Washington Trust had $4 billion of assets under administration, Mr. Daukas said. Its strategic plan calls for increasing that total to $10 billion within the next few years, he said. The company will "continue to look for appropriate acquisitions," which should account for half of the growth, he said.
The overlay function will use technology from Smartleaf Inc. of Cambridge, Mass., to rebalance investments across the three advisory units, Mr. Daukas said.
The $2.7 billion-asset Washington Trust's three wealth management businesses are 1800 Asset Management, a trust and investment manager, and two advisory firms it has bought over the past several years.
In addition to the overlay system, Washington Trust is adding "a number of different enabling systems" to improve its wealth management business, he said. For example, it is using a customer relationship management system from Concord Wealth Management, a Matawan, N.J., unit of Concord Capital Partners, to help pair clients with the right products and services, he said.
Todd Smurl, the chief investment officer of Smartleaf, said banking companies frequently have different custodians and accounting systems for their different wealth management units, particularly those that were acquired.
A "common chassis" allows each business unit to maintain unique characteristics such as proprietary products or asset allocation processes, Mr. Smurl said.
At the same time, it streamlines operations involved with portfolio implementation, such as reviewing and analyzing the portfolios and determining which trades are needed, he said.
Mr. Daukas said the technology will let Washington Trust service clients with less assets profitably.
Currently 65% of Washington Trust's wealth management clients are in the high-net-worth bracket, he said, and its "sweet spot" is those with $1 million to $15 million of assets. The new overlay management arrangement will enable it to serve those in the $400,000 to $500,000 range, he said.
Mr. Smurl said his technology will let Washington Trust do so by automatically aligning its investment policies, which encompass areas like asset allocation and manager selection, with clients' goals.
Mr. Daukas said Smartleaf's technology provides operational efficiency and ability to use a common set of investments across Washington Trust's wealth units.
Overlay management works with unified managed accounts. Companies such as U.S. Bancorp, Bank of America Corp., and SunTrust Banks Inc. offer the accounts because of their tax management and investment screening capabilities. The accounts can contain a products from stocks, bonds, and exchange-traded funds to mutual funds and alternative investments.
Washington Trust is one of the early adopters of Smartleaf's technology, Mr. Smurl said, though "the concept of overlay and unified managed accounts is becoming more and more standard."
According to Mr. Daukas, using unified managed accounts will expand the range of investment options for Washington Trust. Boutique managers who have not built the infrastructure necessary to run separate accounts can be more efficiently compensated for unified managed account models, he said.
