Cort Smith Writing Sample IA Mag Managed Accounts

S U P P L E M E N T
T O
T H E
J U N E
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I N V E S T M E N T
A D V I S O R
A D V I S O R
S P E C I A L
M A G A Z I N E
S E R I E S
R E P O R T
Ameritrade Advisor Ser vices ™
lays siege to the industr y’s
status quo.
A Growing Industry
3
A Revolutionary Competitor
4
A Time for Change
5
Future Industry Trends
6
The Ameritrade/ADVISORport
Product Offering
7
Services for Financial Planners
7
Services for Money Managers
8
Which UMA Is Applicable?
8
About the Ameritrade Managed
Money Program
9
Fee Terminology
10
Getting Started
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Need More Help?
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n today’s competitive wealth management arena,
ally uses managed accounts. Usage rates for SMAs are someregistered independent advisors (RIAs) are looking
what higher for larger advisors. This is in stark contrast to
for ways to meet the needs of existing clients and
extensive use of managed accounts by full-service brokers. As
gain new ones. But providing new products or services that take
these brokers move steadily into fee-based products (versus
extra time and resources often places too much strain on small
their traditional commission-based business), they will become
to mid-sized practices. Consequently, most advisors don’t make
even more formidable competitors to fee-only RIAs, who prethe effort. This precludes their clients from enjoying the underdominantly use no-load mutual funds.
lying benefits of these valuable products and services, and limFortunately, a number of custodians have seized the opportuits an advisor’s potential assets under management.
nity to help out. These custodians are fiercely competing
The pool of potential clients is quite large. There are 28 milagainst one another to offer advisors an array of time- and
lion households that are considered “mass affluent” and “high
money-saving solutions to benefit the mass affluent and highnet worth,” according to Tiburon, California-based Tiburon
net-worth market segments. Using newer technologies backed
Strategic Advisors. This repreby quality institutional support
Demographic Income
Market Size
sents $13.4 trillion of available Segments
Producing Asset (IPA)
Number of Households staffs, they can offer RIAs assisinvestable assets, according to
tance in delivering a desired
Mass Market Under $100,000 in IPA
80 million households
an April 2004 Tiburon study.
client experience while streamMass Affluent $100,000 to $1 million in IPA 24 million households
lining many of the previously
Many independent RIAs with
High Net Worth $1 million to $5 million in IPA 4 million households
labor-intensive functions.
less than $500 million in assets
Super Affluent Over $5 million in IPA
250,000 households
Managed accounts can now be
under management consider
Source: Tiburon Strategic Advisors, LLC
an important part of an overall
that income range to be their
wealth management strategy along with other investment vehicles.
“sweet spot.”
One product that meets the needs of this market is known as
“managed accounts.” The benefits of managed accounts to
Unified Managed Accounts (UMAs), an umbrella term coined by
investors include: transparency (allows daily access to underlying holdings versus mutual funds); customization (the client
Boston-based Cerulli Associates, encompass the following subcan limit security selection, such as exclusion of tobacco
categories: (1) Separate Managed Accounts, (2) Multi-Strategy
stocks); tax efficiency (portfolios may be managed with a tax
Accounts, (3) Mutual Fund Wrap, (4) Advisor Managed Portfolios,
minimization overlay); advisor managed (usually professionand (5) Model Management (a detailed definition of each of these
ally managed); and cachet (provides access to top institutional
categories is provided on page 7). UMA platforms also include
asset managers not generally
the turnkey services needed to
available to lower level
construct effective client portfoaccounts).
lios, such as manager selection,
According to Market
performance reporting, proposal
Metrics, a research firm headgeneration, manager due diliq u a r t e r e d i n Q u i n c y,
gence, and trading/custody
Massachusetts, 73% of the
services on either a bundled or
dollars flowing into Separate
unbundled (a la carte) basis.
Managed Accounts (SMAs) is
Historically, SMAs first
new money from new or existappeared more than 20 years ago
ing clients—another reason
as “wrap fee” programs and
why managed accounts are
were offered only by the nationbecoming so popular with
al full-service brokers. In the
clients and RIAs. According to
1990s, a new class of firm
Market Metrics and Tiburon
emerged—the turnkey asset
Strategic Advisors, however,
management program (TAMP).
only 4% to 7% of the indeThe largest and most wellpendent RIA community actuk n o w n TA M P s i n c l u d e
A Growing Industry
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flat fee pricing, Ameritrade Advisor Services envisions lowering
UMA expenses for its intermediary RIA clients.
According to James Wangsness, senior vice president of
Ameritrade Advisor Services, the firm’s competitive edge is
enhanced by the best-of-breed synergies resulting from its partnership with PFPC
Managed Account
Services’ADVISORport,
Inc. ADVISORport,
which Bloomberg
Wealth Manager cited
in November 2003 as
the fastest growing
turnkey provider, oversees more than $20 billion in UMA assets.
ADVISORport was
selected by Ameritrade
Advisor Services on a
long-term exclusive
enterprise basis after a
rigorous review
process, says
Wangsness, adding that
“the joint solution offers
institutional caliber
asset managers, industrial strength tools, best
execution, great client
service—all delivered via a scalable technology infrastructure
at a price that is 10% to 50% below that of our competitors—
be it wirehouses, other TAMPs, or competing custodian programs. We want to be a destination in serving RIAs so that
they can provide value to higher-level client relationships
afforded by expanding into UMAs.”
According to Greg Horn, CEO of ADVISORport and managing director of PFPC Managed Account Services, Ameritrade
Advisor Services’ partnership with the ADVISORport platform
enables financial professionals to focus time and attention on
those areas of their business where they can provide the greatest
value added: business development, portfolio management, and
client servicing.
“Our mission is to harness technology to automate all timeconsuming back-office functions, increase operational efficiency, and build platforms that accommodate a wide range of products and services across single or multiple registrations,” Horn
states. “Those enterprises, RIAs, and money managers who do
not avail themselves of these technological advances will
increasingly find themselves at a competitive disadvantage.”
While other custodians and TAMPs offer managed accounts,
Wangsness believes that his firm’s plan is “revolutionary” in
that it will challenge the industry’s pricing status quo—the higher-than-required “wholesale fee” charged to advisors.
Many of the program’s new services are ideal for financial
ADVISORport, Lockwood, and EnvestNet Asset Management—
each of which has merged or been acquired in the past two years as
the industry has consolidated.
Initially, TAMPs served in an “aggregator” role for smaller
accounts. Now, along with other custodian provider programs
launched in the late
1990s, TAMPs own
about 10% to 15% of
the total SMA servicing
market. Before the
TAMP, it was necessary
for investors to work
only with large fullservice brokerage firms
(aka wirehouses), either
using their proprietary
programs or partnerships with external institutional asset managers.
As for independent
RIAs, these services,
generally, could not be
offered since individual
client assets were too
small (less than $2 million to $5 million) for
the advisors to go
directly to the institutional asset managers.
The most successful TAMPs have evolved and now offer the full
array of UMAs.
Assets in SMAs, the largest component of the broader $869
billion UMA market, have grown rapidly over the past few
years. At year-end 2003, SMAs topped $506.7 billion across
two million accounts, according to the Money Management
Institute. MMI, the national organization for the managed
account industry, forecasts SMA growth to exceed $2.1 trillion
by 2011. Industry experts continue to reinforce the need for
fee-only advisors to increase their knowledge of UMAs to
compete against full-service brokers.
A Revolutionary Competitor
One newcomer to the highly competitive managed accounts
business is Omaha, Nebraska-based Ameritrade, Inc.™ The
firm’s Ameritrade Advisor Services division, which services
more than 1,100 fee-based independent RIAs, officially
launched its UMA platform, the Ameritrade Managed Money
Program, in early 2004.
For UMAs, Ameritrade Advisor Services leverages the costeffective infrastructure of Ameritrade, Inc. for best execution.
This is not trivial, since the firm is one of the largest electronic
brokerage firms in the world—with more than 212,000 trades
processed each day1. Just as Ameritrade, Inc. has been the
“champion of the self-directed investor” through inexpensive
1st calendar quarter 2004 daily average
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difficulty is doing this without
sacrificing the advisors’ margin.”
Ameritrade’s pre-tax margin of
53% (according to the firm’s
March 26, 2004 financials) provides the ammunition to shake up
the establishment.
With lower pricing, SMAs
may also attract and accumulate
more assets by distancing themselves from high-priced investments—U.S. active mutual funds
with expense ratios averaging
1.37%, according to Standard &
Poor’s (as of May 10, 2004).
Combined with an advisor fee of
75-100 basis points for a total
client fee of 2.12%-2.37%, there
is no current real comparative
difference if SMA fees remain high as stated above.
Furthermore, many advisors use institutional or low-expense-ratio
mutual funds averaging 60-80 basis points—a point not readily
acknowledged by the industry leaders when stacking fees up
head-to-head. Wangsness argues that if the pricing is appropriately reduced, SMAs may in fact offer a more efficient and customized investment structure for larger client relationships.
How cost effective? Wangsness
points out that in an apples-toapples comparison of products
offered to RIAs through
Ameritrade and ADVISORport,
competitor platform (wirehouses,
TAMPs, and other custodians)
charges average 125-135 basis
points for wholesale fees, while its
own top equity fee is 90 basis
points. Its top fixed income wholesale fee is even lower at 65-70
basis points. “The difference of
35-45 basis points for equity
managers, or 38% to 50% higher fees, is astounding,” he says.
At Ameritrade Advisor
Services, according to Michael
Feigeles, EVP, “helping both new
and established advisors grow their business is our primary
focus. We know that advisors want to service their clients to help
them reach their financial goals. As they succeed in these efforts,
more assets come their way from both existing clients and new
referrals. Our strategic partnership with ADVISORport helps
RIAs accomplish this.” Feigeles oversees Ameritrade’s longterm investor segment, which includes the Ameritrade
Institutional Client Division, its branch network, and new product initiatives, such as bonds. Previously, Feigeles led the
planners seeking to outsource
asset management to devote
more time to asset gathering and
client service. Citing a 2003
AdvisorBenchmarking.com
study, which stated that the most
successful RIA firms in 2002
were those that spent the bulk of
their time servicing clients and
prospects (see chart on page 4),
Wangsness says that this new
program will offer advisors
exactly what they need.
For independent RIAs who
actively manage their own
clients’ securities (Advisor
Managed and Model
Management), the Managed
Money Program also provides
sophisticated tax-lot accounting, performance reporting, and
model creation engines on an outsourced basis. As with outsourced asset management services, offloading the day-to-day
portfolio accounting and reconciliation tasks can result in
allowing the advisor more time to spend on client asset gathering and relationship building.
A Time for Change
Two key value propositions for
Ameritrade’s current RIAs are its
value pricing approach and mantra
of no business hurdles: no quarterly
minimum fees or asset thresholds.
Consider that the current industry equity SMA wholesale fee
(which includes the institutional
asset manager fees, proposal generation, manager due diligence,
and client performance reporting
services, plus custody/trading
charges) averages 1.25% to 1.35%.
Add to this an advisor fee of 0.75%
to 1.00%, and the fee charged to
clients equals 2.00% to 2.35%.
Given lower long-term expected
rates of return, Wangsness believes
these fees are too high—a sentiment that doesn’t sit well with some
entrenched industry players (see graph above).
“According to the MMI website (on 12/21/03), client fees for
SMAs average 225 basis points,” notes Wangsness. “Our contention is that the average fee of 225 basis points can be brought
down to 150 basis points, or lower, for a savings of 75 basis points
to the end investor. When you put this into real numbers, on a $1
million SMA account, this equates to fee savings of $7,500 each
year or $150,000 over 20 years before interest compounding. The
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ed or that do not offer the full UMA experience. Based on this,
Ameritrade envisions continued consolidation of smaller TAMPs.
Merrill Lynch SMA program (“Consults”), the second-largest
wirehouse managed accounts program.
Horn acknowledges that SMAs aren’t for everyone, and that
mutual funds and ETFs are useful tools that serve a specific group
of investors with lower minimums. He notes, however, that new
products, like Multi-Strategy Accounts (MSAs), can offer clients
a diversified portfolio of Separate Managed Accounts for minimums of $150,000. “In addition to diversification across asset
classes, styles, and managers, Multi-Strategy Accounts provides
investors with the customization of separate accounts at a lower
cost than many mutual funds,” Horn says.
“As with all businesses, new entrants create opportunities for different models and pricing structures,” says Feigeles. “With nearly
85% of all SMAs currently held at full-service brokerage firms, the
emergence of opportunities for advisors to have access to this market will have an impact on price, which
can ultimately help investors’ performance.” Advisors should get more than
their fair share of the growth forecasted
by the MMI while attracting existing
assets currently housed at the full-service programs, he says. “This is particularly true for our SMA platform, since
many of ADVISORport’s managers
are in the top full-service brokerage
platforms, such as 1838, Rittenhouse,
Delaware, and Nuveen.
“Overall, our approach with SMAs
is consistent with all our other advisor
offerings, Feigeles adds. “We’re combining excellent client service with
value pricing. Guided by state-of-the-art multi-manager proposal
tools and streamlined custody and trading procedures, RIAs who
want to offer solutions to their clients will find Ameritrade’s managed money platform extremely exciting. It is working for advisors in all our other products, and it will also with SMAs.”
New Distribution Entrants—Competition for RIAs
There will be new entrants—specifically the “breakaway brokers” (registered representatives from wirehouses, regional
broker/dealers, independent firms) seeking to set up RIA practices. These fee-only or dually-registered advisors will have
enormous opportunities in the marketplace since they are
already big sellers of managed accounts and are ready converts
for outsourcing asset management.
Wirehouses Less Dominant
While wirehouses will still be the predominant distribution
channel, their percentage of the managed accounts market
will decrease as independence and
higher payouts speak to captive registered representatives to become
independent RIAs. According to the
Boston-based Financial Research
Corporation’s newsletter, FRC Vision
(April 2004), the wirehouses’ SMA
market shares will “erode from an
80% share to a 60% share by 2008.”
Given lower long-term
expected rates of return,
Wangsness believes SMA
fees are too high—a sentiment that doesn’t sit well
with some entrenched
industry players.
Indexing/ETFs vs. Hedge Funds
ETF and indexed mutual fund use will
grow in terms of portfolio construction alternatives. With many ETF
expense ratios in the 12-25 basis point
range, those favoring indexing will be
able to offer a lower-priced alternative to clients. Expect to see
these bundled within UMAs. On the opposite extreme, hedge
funds will continue making headway into SMAs and MSAs.
Retirement Assets
According to the Financial Research Corporation’s April 2004
FRC Vision, the “percentage of SMA net flows associated with
IRA rollovers will approach 40% by 2008, topping $50 billion
annually.” The battle for “mass affluent” assets will heat up.
Mutual fund wrap accounts (active/index) may become more
important for qualified assets (such as IRA rollovers).
Future Industry Trends
As previously noted, UMAs have evolved substantially over
the past 20 years. In an industry that never stops changing,
Ameritrade and ADVISORport believe that UMAs will continue to evolve. Here are the firms’ collective predictions combined with some industry analyst forecasts:
Expanded Product Offerings
Additional service and product offerings will proliferate. One
example is ADVISORport’s own MSA offering with hedged
strategies (a blend of long-only models and a registered hedge
fund-of-funds). There have also been attempts at delivering
SMA accounts with minimums down to $25,000, which usually require fractional shares. Success has been nominal in this
product category. The growth in serving smaller relationships
with SMA-type products appears to be that of increased MSA
volume rather than smaller SMAs.
Industry Consolidation and Technology Outsourcing
Outsourcing performance reporting will continue to provide cost
savings in personnel time, especially when you consider staff
turnover. The need for greater scale will drive further consolidation within the platform industry. Systems will become more automated and self-service, which will lower hurdles to adoption for
time-starved RIAs. MSAs will continue to make it easy to pick
prepackaged portfolios. This may also put pressure on existing
TAMPs or other programs that are not technologically sophisticat-
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The Ameritrade/ADVISORport
Product Offering
S E C T I O N
third-party asset managers. Many MSAs employ a single manager for all of the asset classes and equity styles represented within
the account. The MSAs offered by Ameritrade and
The joint ADVISORport/Ameritrade Advisor Services solution
offers services for both financial planners and money managers.
The following is a description of the five types of UMA services
offered within the Ameritrade Connection™ technology platform.
Services for Financial Planners
In all cases below, the end investor is charged an asset-based fee
(also known as a “wrap” fee) in lieu of commissions.
For illustrative purposes only
1. Separate Managed Accounts (SMAs)
SMAs are professionally managed individual investment portfolios of stocks, bonds, and other asset categories, such as hedge
funds, targeted at Mass Affluent and High Net Worth investors. The
investor’s funds are managed in separate accounts controlled by a
platform/sponsor (ADVISORport) that typically contracts with
multiple institutional asset managers to provide a diversified
investment strategy for the investor. Investors get access to this
platform via their advisor, who uses a custodian, such as
Ameritrade, to safekeep securities, settle trades, process corporate
For illustrative purposes only
ADVISORport use different managers for different asset classes,
in order to provide clients with diversification across various
managers as well as across multiple asset classes and styles.
Mutual funds for high-yield bond exposure can also be commingled. MSA models are created for a wide range of investor risk
profiles. Furthermore, an overlay manager (in this case
ADVISORport) is responsible for the initial investment allocation, periodic rebalancing of investments, and for controlling any
tax sensitivity issues for taxable accounts, if applicable. MSAs
created by ADVISORport range from a minimum asset level of
$150,000 to $400,000. Eight different MSAs with asset allocation mixes and domestic/international exposure are available,
including some with registered hedge fund-of-fund exposure.
These tranches can be combined with a tax-managed sensitivity
overlay option to yield 16 total combinations.
For illustrative purposes only
actions, and provide client reporting. The advisor controls the asset
allocation mix and institutional asset manager selection. Each asset
manager has individual account minimums, which generally range
from $100,000 for equities and $200,000-$250,000 for bonds.
Some higher-level hedge funds-of-funds require $1 million. (A prototypical asset manager profile is shown above).
2. Multi-Strategy Accounts (MSAs)
MSAs (also known as Multi-Discipline Accounts or MDAs) are
a variation of the traditional Separate Managed Account. They
are packaged portfolios with predetermined asset allocations with
each asset class allocated to stock and bond models provided by
3. Mutual Fund Wrap
Mutual Fund Wrap accounts involve using mutual funds, versus
individual stocks and bonds, to create a properly diversified
portfolio. An overlay manager (ADVISORport) is engaged and
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For illustrative purposes only
uses Ameritrade Advisor Services’ mutual fund supermarket
with over 2,500 no-transaction-fee (NTF) and no-load/loadwaived mutual funds for portfolio construction. An additional
9,500 transaction fee mutual funds (some of which are no load)
can also be used. Like the prepackaged MSAs, the advisor can
create a proposal using a risk-scored questionnaire and select
from pre-allocated models. The periodic rebalancing decisions
are the responsibility of the overlay manager. The asset minimum for mutual fund wrap is $50,000.
Services for Money Managers
The following two services are available for advisors who are
themselves money managers. Unlike
SMAs, for example, these services
include transaction fees for the underlying securities traded through
Ameritrade as custodian.
4. Advisor Managed
Advisor Managed (or Representative
Managed) provides for the delivery of
AIMR-compliant performance reports
by advisors to end investors. Nightly,
Ameritrade Advisor Services sends to
ADVISORport the daily trade transactions that are reconciled against any
corporate actions, such as dividends,
and splits. Daily cost basis information by account and weekly performance data are available.
Private- labeled monthly and quarterly performance reports are
generated and posted electronically for distribution by the RIA
to their clients.
Also, for independent RIAs outsourcing some portfolios to
SMAs, their individually managed securities can be combined on
the same performance report. This service is ideal for advisors
that do not want to download to PC-resident portfolio accounting
packages, such as Schwab Performance Technologies’
Centerpiece, nor reconcile daily prices and corporate actions.
trade files are efficiently created
across multiple clients for execution
in a single block trade. RIA inputs,
such as individual client account
restrictions and constraints, are accommodated for each account.
Model management is an ideal tool when accepting existing client
holdings and managing around an index or other model designed or
acquired by the RIA.
Which UMA is Applicable?
While asset minimums have come down significantly over the
past few years, there are basic guidelines to determine which
UMA type investment is the most appropriate (see graph below).
According to Ameritrade, the main determinants are: (1) the
advisor’s business model, (2)
level of client assets, (3) the
amount of ongoing involvement
required by the RIA, and (4) the
client’s overall investment
needs. For a proper asset allocation strategy to two equity managers and a bond manager, an
SMA would need at least
$400,000 in assets (for example,
$100,000—equity manager #1,
$100,000—equity manager #2,
and $200,000—bond manager
#1), notes Wangsness. Further,
he adds that RIAs not seeking to
select money managers, decide
5. Model Management
Model Management is the newest
offering from ADVISORport and
provides RIAs with the ability to
maintain stock, ETF, and mutual
fund models, which can be used to
trade multiple client accounts
against relevant benchmarks.
Portfolio querying and filtering
capabilities periodically alert RIAs
to the actual versus target portfolio
variances (see three screenshots
above). RIAs can then rebalance
the accounts to minimize tracking
error, minimize taxes, or a combination of the two. Operationally,
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For illustrative purposes only
on asset allocation mixes, or rebalance accounts should steer
towards MSAs versus SMAs.
Generally, SMAs are valid at the $400,000-$500,000 level
and above; MSAs are applicable starting at $150,000 with no
upper limit; and Mutual Fund Wrap is applicable in the
$50,000-$150,000 range. The Advisor Managed and Model
Management options can be used at any asset level.
Alternative strategies, such as hedge funds, which are part of
SMAs, have substantially higher minimums, normally at $1
million or above unless used inside an MSA.
About the Ameritrade
Managed Money Program
Ameritrade’s Managed Money Program is a full turnkey
UMA offering. The firm does not currently offer an unbundled
program and believes that its aggressive pricing structure will
entice RIAs who have previously needed to go the a la carte route.
The following is detailed information on each of the five
main service components of the Managed Money Program,
using SMAs to illustrate. The main components include:
c. Asset Manager Selection
Comprehensive due diligence in the Ameritrade Managed
Money Program is offered through ADVISORport on more than
25 asset managers across 40-plus style/capitalization ranges. The
program will continue to add new managers with solid track
records periodically. An updated list is available upon request.
a. Branding/Customization
All statements, proposals, and reports are customized to support
the RIA’s brand. The “screen shots” herein are an example of
the type of customization you can expect. This customization
is provided at no extra charge.
d. Asset Manager Due Diligence
A key advantage is ADVISORport’s expertise in due diligence on
equity, bond, and alternative investment managers as well as mutual funds. This includes qualitative and quantitative screenings and
annual on-site visits. ADVISORport uses a five-step process to perform due diligence, which consists of (1) extensive screening procedures for potential managers, (2) quantitative performance analysis, (3) evaluation of qualitative factors, (4) an investment committee review, and (5) ongoing monitoring. The following is a detailed
breakdown of each due diligence component:
Screen preliminary factors to identify candidates
ADVISORport rigorously screens each potential manager
using proprietary and external database sources. The screening
process evaluates objectives, investment performance, track
record, regulatory compliance, and key investment personnel.
For illustrative purposes only
Quantitative performance analysis
Quantitative analysis is used to determine asset/class style,
risk-adjusted returns, performance consistency, and relative
performance to peers.
Evaluate qualitative factors
Qualitative analysis encompasses interviewing investment
principals for length of tenure, staff turnover, and operational
efficiencies. This is ideal for alternative investment managers
who may not share as much quantitative data as desired and
where informed judgment calls are necessary.
b. Proposal Generation System
The proposal generation system produces robust in-depth proposals for advisor use. Included are all of the necessary tools
for RIAs to make appropriate decisions, including risk questionnaires, asset allocation, efficient frontier trade-offs, securities selection methodologies, extensive asset manager
research profiles and market data, and a client contact database. Additionally, the proposal generation module allows for
customizing fees.
Investment Committee review
The investment committee reviews managers for
upgrades/downgrades, and updates its capital markets assump-
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tions (expected rates of return and asset allocation policies).
Unlike unbundled offerings where the RIA has little control
except to leave a manager, ADVISORport’s scale has allowed
them to positively influence institutional asset managers to correct any deficiencies, thus minimizing client disruptions.
Perform ongoing monitoring
ADVISORport conducts face-to-face meetings with managers
every 12 to 18 months. Quarterly, there are conference calls to
discuss portfolio construction and market conditions.
Additionally the service provides ongoing monitoring for risk,
style consistency, dispersion of returns, attribution analysis, and
personnel turnover.
S E C T I O N
Ameritrade and ADVISORport combine their services into
a consolidated “Platform” fee. This fee ranges from 15-40
basis points for equities and 15-35 basis points for SMAs
and MSAs. Asset manager fees are additional, and range from
35-50 basis points for equity managers and, generally, 30-35
basis points for fixed-income managers. No markup is affixed
on top of the underlying asset manager fees. Overall, the highest wholesale fee is generally 90 basis points for equities and
65-70 basis points for fixed income. These fees drop based on
a tiered asset schedule (to $250K, $250K-$500K, $500K-$1
million, $1-$2 million, $2-$5 million, $5 million-plus). The
advisor is free to charge whatever asset-based fee required
that results in the All-In Client Fee.2
As mentioned earlier, Wangsness notes that an
apples-to-apples comparison of Ameritrade/
ADVISORport’s solution to those of its competitors
shows the latter charging an average of 125-135
basis points—35-45 basis points (38%-50%) higher
than the Ameritrade Managed Money program.
For illustrative purposes only
Comparing Apples to Apples
e. Ongoing Advisor/Client Reporting
(Cost Basis/Performance)
The Reporting module harnesses a
tax-lot accounting engine with full
cost basis. This service provides nightly reconciliation of managed money and security accounts (if
applicable) and monthly and quarterly performance reports
against custom blended benchmarks (see above). This reporting
engine also tracks special events, including tax-loss harvesting,
and withdrawals/contributions.
Fee Terminology
Wholesale fees applicable to the independent RIA include the
following components:
Platform Fee*
+ Money Manager Fee**
= Wholesale Fee
The Benefits of Householding
For SMAs, MSAs, and Mutual Fund Wrap, multiple account relationships held within the same family structure that are taxable and
tax deferred are available for householding benefits. Many competitor programs do not pass these savings along to the advisor or
the end client. To illustrate, let’s say that you have $1,000,000 in
household assets split evenly into two $500,000 equity SMAs. The
following table shows the benefits of householding:
Non-Householding
First $250K tier
= each at 40 bps
Next $250K tier
= next $250K at 33 bps
Next $500K tier
= not applicable
Blended rate = 36.5 basis points
+ Advisor Fee
= All-in Client Fee
*
Includes the sponsor fee (proposal system, investment consultant review, due diligence,
advisor and client reporting); custody and clearing fee (trading, clearing, custody, client
services)
**
Institutional asset manager fee
2
A la Carte Add-Ons
An apples-to-apples comparison of services
offered is also important so as not to be surprised
by a la carte add-on fees. A la carte fees charged
by some competitors include: (1) investment
consultant reviews (for example, help by professionals on constructing proper portfolios), (2)
research and market data, (3) portfolio rebalancing, and (4) customizable graphics for client presentations. One noted competitor adds a 25-basis
-point surcharge. Ameritrade’s Managed Money
Program, however, is a full turnkey offering with no hidden
surprises.
A small surcharge may apply for accounts with high turnover (i.e., called medium/high turnover bands). This is automatically calculated into the basis point fee by the billing system.
10
Householding
First $250K tier
= combined together at 40 bps
Next $250K tier
= $250K at 33 bps
Next $500K tier
= $500K at 28 bps
Blended rate = 32.25 basis points
Annual client savings = $425 in fees
S P E C I A L
S P O N S O R E D
Getting Started
Need More Help?
Getting started is straightforward. Ameritrade personnel
(866-268-3247) can provide a list of regional sales professionals in your area with whom you may consult. The base
requirements for the Ameritrade Managed Money Program
are: a Wholesale Services Agreement3, a logo to customize
your site, a copy of the RIA’s Form ADV (Parts I and II), and
contact information. Ameritrade would be more than happy to
discuss your stated objectives to ascertain suitability under no
obligation.
Generally, your account and branded UMA site can be
established and customized within two weeks. At that point,
the advisor is ready to load client data, establish reporting
groups (householding, billing with tiered fees, and others), or
use the Research Center to select institutional asset managers,
MSA portfolios, or market data on mutual funds.
Next, the Investment Proposal needs to be created. You are
not on your own, however. ADVISORport has a talented team
of regionally focused investment consultants to help walk you
through the system step by step—risk questionnaire, investment constraints, optimization routines, asset allocation tradeoffs, asset manager selection, and even fee customization. For
some competitor programs this service carries a surcharge. At
Ameritrade, it is an essential component of the company’s
bundled solution, and is provided gratis.
Accepted investment proposals then require the advisor to
sign a tri-party Investment Management Agreement with
ADVISORport, Inc. and the investor.4
Note that new funds going into equities are generally
invested within the first week of release to the asset manager.
Fixed-income managers generally set the duration of the portfolio over the first two weeks, but may take up to a month or
more to fully invest the funds. For RIAs bringing over assets
from a competitive program, Ameritrade’s program offers the
ability to:
(1) Keep/sell existing security positions
(2) Load historical tax lot data
(3) Load historical returns
For more information on Ameritrade’s Managed Money
Program, the following resources are available:
• Current list of asset managers (with performance, risk,
and minimum investment statistics)
• Four-page brochure on fees
• Ameritrade Managed Money program electronic tutorial
Feel free to call Ameritrade’s RIA Sales Support Desk at
866-268-3247 for any of the above. Alternatively, you may
call or e-mail Ameritrade Advisor Services (Jim Wangsness,
SVP) at 201-558-4066 or jwangsness@ameritrade.com.
Upcoming Educational Events
In order to assist clients and prospects in understanding
UMAs, Ameritrade is hosting a series of free educational
events during 2004:
Internet Seminars – These will commence in the summer of
2004 and include a thorough walk-through of the system,
explain how UMAs can meet your clients’ needs, plus allow
for a general question and answer chat session. For a list of
upcoming dates/times and connectivity information, please
contact Ameritrade’s independent RIA Sales Desk.
PowerSource 2004 (October 18-20; Los Angeles) – Mark
your calendars to participate in the second annual Ameritrade
Advisor Services conference for RIAs. Ameritrade,
ADVISORport, and various institutional asset managers will
be on hand. Attendance is free for RIAs.
The Managed Money Program is offered and conducted by ADVISORport, Inc. The institutional money managers in the SMA and MSA programs are not affiliated or associated
with Ameritrade Advisor Services. Ameritrade Advisor Services is not an investment advisor and is not responsible for advice, information or management provided by
ADVISORPort, Inc. or the institutional money managers, or for third party financial or
investment information or services, including market data provided by the exchanges.
Accounts held with Ameritrade Advisor Services are not directed by Ameritrade Advisor
Services. In the case of the Managed Money Program, accounts are directed pursuant to
the ADVISORPort, Inc. Managed Money Program that you choose. You and/or
ADVISORPort, Inc. are responsible for managing your client accounts using the Managed
Money Program that you choose. ADVISORPort, Inc. is a separate company and is not
affiliated with Ameritrade Advisor Services.
The latter two features are to ensure continuity of client
reporting. Finally, once the investments are made, Ameritrade
Advisor Services’ Omaha-based relationship service representatives provide ongoing client services with the advisor rebalancing periodically. Advisors have access to a wealth of
reporting while clients receive easy-to-read and graphically
intuitive monthly and quarterly reports. ADVISORport personnel are called upon for expert support where necessary.
3
4
S E C T I O N
Tax-lot and performance reporting provided by ADVISORport, Inc. Ameritrade Advisor
Services is not responsible for the suitability of the information. Ameritrade Advisor services does not provide investment advice, investment management, or tax advice. You or
your clients may wish to consult independent sources with respect to tax lot and performance reporting.
All other third party firms referenced are separate, and unaffiliated with Ameritrade
Advisor Services. Brokerage services provided exclusively by Ameritrade Advisor Services,
Division of Ameritrade, Inc., member NASD/SIPC. Ameritrade Advisor Services, Ameritrade
Connection and Ameritrade Advisor Services logo are trademarks of Ameritrade IP
Company, Inc. © 2004 Ameritrade IP Company, Inc. All rights reserved. Used with permission.
The Wholesale Services Agreement identifies Ameritrade as a custodian conduit for the RIA. Since Ameritrade is only a broker/dealer, it provides no advice and doesn’t opine on the suitability of investment decisions made by the advisor, ADVISORport,
or the institutional asset managers.
The agreement explains the roles/responsibilities and fully discloses the fees paid to the asset manager, ADVISORport, and the RIA. Ameritrade is not a party to this agreement, but the firm is referenced as custodian – i.e., the disbursement agent
for funds to pay all associated parties and collect necessary dividends and income in its traditional custodian role.
11
“I want to offer my
clients a wide selection
of fee-based services . . .
that they can afford.”
Now you can.
With the Ameritrade Advisor ServicesTM
Managed Money Program.
Give your clients access to a full range of fee-based services, customized
to fit their financial goals with our Managed Money Program.*
We make it easy for you to structure the right investment plan for
each client with a collection of institutionally managed third-party
products – like Separate Managed Accounts (SMAs), Multi-Strategy
Accounts (MSAs) and Mutual Fund Wrap Accounts.
Keep your clients up to date on all their investments with full tax-lot
accounting and consolidated performance reporting. Also, use Model
Management to structure and rebalance your own securities models,
based on the parameters that you set.
Here’s the best part. You can give your clients the customization they
want while you pay up to 40% less than you could with other programs.
Find out more about the Managed Money Program from
Ameritrade Advisor Services today. Call 866-268-3247 or visit
www.ameritradeinstitutional.com to find out more.
You’ve got the power.
*The Managed Money Program is offered and conducted by ADVISORport, Inc. The institutional money managers in
the SMA and MSA programs are not affiliated or associated with Ameritrade Advisor Services. Brokerage services
provided exclusively by Ameritrade Advisor Services, Division of Ameritrade, Inc., member NASD/SIPC. Ameritrade
Advisor Services is not an investment advisor and is not responsible for advice, information or management provided
by ADVISORport, Inc. or the institutional money managers, or for third-party financial or investment information or
services, including market data provided by the exchanges. Accounts held with Ameritrade Advisor Services are not
directed by Ameritrade Advisor Services. In the case of the Managed Money Program, accounts are directed pursuant
to the ADVISORport Managed Money Program that you choose. You and/or ADVISORport, Inc. are responsible for
managing your client accounts using the Managed Money Program that you choose. Ameritrade Advisor Services is
not affiliated with ADVISORport, Inc. Tax-lot and performance reporting provided by ADVISORport, Inc. Ameritrade
Advisor Services is not responsible for the suitability of the information. Ameritrade Advisor Services does not provide
investment advice, investment management, or tax advice. You or your clients may wish to consult independent
sources with respect to tax-lot and performance reporting. Ameritrade Advisor Services and Ameritrade Advisor
Services logo are trademarks of Ameritrade IP Company, Inc. © 2004 Ameritrade IP Company, Inc. All rights reserved.
Used with permission.