In a previous post (6 Keys to Launching a Successful UMA Program), one of the panelists commented that no vendors currently have a complete solution for Unified Managed Households (UMH). I thought this would be an excellent opportunity to touch base with a few vendors that offer fee-based advisory platforms to learn more about their UMH support.
For the first part of this series, I spoke with Aaron Schumm, Chief Customer Officer at FolioDynamix. Folio recently announced a deal with Vantage Benefits Administrators, who will deploy FolioDynamix’s wealth management platform for group benefit plan modeling, rebalancing and trade order management as part of their comprehensive benefit plan offerings.
Can you provide a brief description of your company’s approach to delivering a UMH solution?
The approach taken by FolioDynamix has been to provide a true UMH solution by allowing their clients to prospect, model, monitor, and report on assets at the household level, Schumm explained. While other vendors claim to offer UMH features such as household-level rebalancing, prospective clients should make sure to understand what they actually mean, he warned.
Folio’s platform supports creation of proposals at the household level and allows the advisor to set an asset allocation across all account types. The system will automatically analyze security selections and make recommendations as to the most tax-optimal accounts to place them in. This tax-aware location analysis can save clients a significant amount over the long-term.
Historical Performance of Asset Location Strategies and Its Implications for Investors’ Retirement Portfolios, by Andrei Shynkevich, The Journal of Wealth Management, Fall 2010, Vol. 13
Folio’s UMH-capable platform can monitor drift at the household level. Of course, when rebalancing at the household level, assets can not be transferred between accounts of different registration types, Schumm pointed out. What they can do is to go back and make adjustments to the household asset allocation model that is linked to the Investment Policy Statement (IPS). This may require re-papering the IPS, he noted.
What specific feature(s) set your UMH solution apart from your competitors?
According to Schumm, FolioDynamix offers a feature that ties household drift monitoring alerts back to the IPS, turning it into a living document. Instead of relying on annual reviews to ensure that a client’s portfolio is adhering to their suitability and risk profile, FolioDynamix monitors it in real-time. They currently support five different levels of drift monitoring that can be configured through their alerting dashboard, he explained.
Does your platform support held-away assets?
Held-away assets are supported, although it is up to the client to perform the data aggregation and then pass it to Folio’s platform. Once the data has been imported, the advisor or overlay manager can decide whether or not to take them into consideration. The assets can be included in proposals as part of the household asset allocation. They can also be included in drift monitoring and performance reporting. Schumm hinted that they are exploring the development of tighter integration with a number of data aggregation vendors.
Can you name one or two clients that are taking advantage of your UMH functionality?
Schumm couldn’t provide a specific client name without their permission, but he did describe how one of their largest clients is utilizing their system. The firm is a bank holding company with over $100 billion in assets and will be taking advantage of the entire FolioDynamix platform, Schumm reported. Their trust division is already a client for research and proposal generation and they just signed a contract to use the rest of the platform, he said.
This is the first client that will be using FolioDynamix on both the bank trust and wealth management sides of their business, Schumm pointed out. Under this new contract, their investment advisory division business will be implementing the Folio platform for UMA, SMA, Rep as PM as well as Mutual Fund Wrap (MFW). This was original vision for FolioDynamix, Schumm claimed, allowing clients to break down silos and leverage a single platform across their firm.
Can you list some of the UMH features that are in your development pipeline?
In December, with their v7.1 platform release, FolioDynamix is enhancing their drift alerting dashboard capabilities to notify users when household-level drift has occurred at the asset type and asset class level, Schumm reported.
The new drift monitoring functionality will include:
- Household Name – Name of Household
- Target Allocation – Name of assigned Allocation
- Avg. Drift – Total Drift / # of entities in Allocation
- Total Drift – Sum of the Absolute value of drift for each entity
- Avg. Outside Tol. – Total Outside Tolerance Drift / # of entities in Allocation
- Total Outside Tol. – Sum of the Absolute value of outside tolerance drift for each entity
- # Outside Tol. – Number entities outside of tolerance
- % Outside Tol. – Number entities outside of tolerance / Number of entities in Allocation
- Max Drift % – Drift % of most drifted entity
- Max Drift $ – Drift $ of most drifted entity
- Consec. Days – Number of days # Outside Tolerance > 0
- Cash Amount – Total Cash
- Cash % – Total Cash / Total Market Value
- Cash Drift – Cash Percentage – Cash/Cash Equivalents target
- Relative Cash Drift – Cash Drift / Cash/Cash Equivalents Target
- Last Update – Timestamp of Drift Statistics
Also, v7.1 will include household-level restriction management. Future releases will include additional tax logic constraints across a household, Schumm told me.
Related WM Today Content
6 Keys to Launching a Successful UMA Program
Why Haven’t Advisors Embraced Unified Managed Accounts?
Beyond the Style Box: SMAs and Model Portfolios
I apologize for the delayed response. If I am understanding what you are asking correctly (please let me know if I’m misinterpreting), FolioDynamix, as a vendor, is in the fortunate position to help support the industry regulation requirements around KYC & Reg 9. Although the process for adhering and reporting for items, such as Reg 9, are on the actual regulated entity, FolioDynamix is able to capture the data and help provide the information back to the fiduciary.
I hope this helps answer your question. Please let me know if you would like any more information.
How does Folio Dynamics, as a vendor, resolve impediments to the advisor’s expert fiduciary standing for which it is not part of the decision making process? Doesn’t expert support for fiduciary standing require a new generation of clients for Folio Dynamics, that is not a broker/dealer?
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