Advisor Corner: Transitioning Your Managed Account Business

If you’re like many advisors, a good portion of your book may be in managed accounts. As such, when you’re considering leaving to start an RIA or join one, it’s critical to know how to properly prepare to transfer those assets. Employer firm restrictions on what constitutes an individual advisor’s “book” are not uncommon; consider consulting with your legal counsel when preparing to move. In this issue we speak with Scott Egner of TD AMERITRADE Institutional’s Managed Platform Solutions group to help us get more familiar with the process.

Step 1: Divide your book according to proprietary and non-proprietary assets.
When it comes to making a move to an independent RIA, fear of losing clients can be a concern. Indeed, according to the Advisor Evolution Study, conducted by Registered Rep and TD AMERITRADE Institutional in the fourth quarter of 2009, nearly half of the RIA respondents listed client loss as a top concern when changing firms. While some may fear that clients won’t move their assets to their advisor’s new firm—73 percent did—according to the first quarter 2010 Advisor Evolution Study. Nonetheless, it is important to do all you can to facilitate an easy transition.

One way to encourage clients to transfer their assets to your new firm is to make sure you’re offering them nearly identical solutions at the RIA firm you start or join. That means making sure you have access to the same or similar products through your chosen custodial partner. So one of the first things to consider, before even meeting with different custodians, is to separate your book into proprietary and non-proprietary assets.

One of the biggest mistakes advisors may make is thinking they have a $100 million practice, when in reality only 50 percent of it is transferable. That’s because there are certain types of assets that do not move as smoothly. Wirehouse brokers, for example, may have clients in proprietary limited partnerships or alternative strategies that are unique to the brokerage. In many cases these products may not be transferrable. There are also certain types of structured products that cannot be moved to a custodial platform from a brokerage.

It’s important to consider transferable assets in your revenue projections before making any critical business decisions. At TD AMERITRADE Institutional we go through a variety of revenue scenarios with advisors to examine the impact of clients moving, or not moving, their assets. We look at what advisors’ practices would look like in the event 70 percent of the assets transferred, 80 percent and so on. This exercise allows advisors to realistically evaluate the impact of their transition. It’s very important to make sure you have reasonable expectations with respect to your future revenue.

Step 2: Consider the product mix of your potential custodial partner or partners.
Once you determine how much client assets could theoretically transfer, check to make sure the products you’re currently using are available through the custodian you are considering.

Ideally, the custodian you choose to work with will be able to provide you access to most, if not all, of the separate account managers, mutual funds and Exchange-Traded Funds (ETF) you currently use for your clients. But that may or may not be the case. Many advisors group the managers they work with into three buckets. The first is: “If I can’t get them it’s a deal-breaker.” The second is: “I would prefer them, but I’m open to suggestions.” The third is: “I’m open to change.” As you make your lists, remember also to consider which assets are taxable and which are non-taxable since switching managers in a non-taxable account may be more palatable to the advisor and client when there are no tax consequences.

Once you’ve grouped the managers into buckets, you can approach your custodian to see about finding alternative managers if the need arises. At TD AMERITRADE Institutional we will attempt to add managers if they aren’t already on our platform or find advisors a close alternative. Often times what you initially think is a deal-breaker may not turn out to be one after all. Sometimes, we’re even able to provide advisors with replacement managers they hadn’t previously considered who may be meeting specific investment objectives better than their current manager.

Step 3: Consider which managed account products may be more efficient or will allow you to consolidate assets.
You might want to use your transition from a broker/dealer to an RIA as an opportunity to streamline how you deliver your client solutions.

At TD AMERITRADE Institutional, for example, our Unified Managed Account (UMA) Program helps you offer your clients a unified, fee-based product with more investment choices. For those of you who don’t know, UMAs are portfolios made up of separate account strategies, mutual funds and ETFs that offer broad asset allocation all in a single account. They can be considered for clients who need customized portfolio solutions and help make your business more efficient. UMAs may be particularly useful for clients who require customization for tax management* purposes or risk management reasons. They’re also something to consider for retirees who take periodic distributions for their income needs. The TD AMERITRADE Institutional UMA also offers automatic rebalancing, the ability to restrict certain sectors or securities, consolidated statements and reporting,

Execute your business vision
Becoming an independent RIA can offer you the freedom and flexibility to achieve your business vision and allow you the chance to manage assets as you see fit. It’s important to consider the steps you’ll need to take in order to form a successful transition plan. TD AMERITRADE Institutional has comprehensive transition resources and tools in place, including a team of dedicated Transition Consultants, to help ease your transition to joining or starting an independent RIA.

Scott Egner is Manager of TD AMERITRADE Institutional’s Managed Platform Solutions team.

TD AMERITRADE Institutional, Division of TD AMERITRADE, Inc., member FINRA/SIPC/NFA.

This is not an offer or solicitation in any jurisdiction where we are not authorized to do business. Past performance of a security does not guarantee future results. All investments are subject to investment risk, including possible loss of the principal invested.

*Optional tax management services provided by unaffiliated third-party companies are available at an additional cost. TD AMERITRADE Institutional does not provide tax advice. Clients should consult with a tax-planning professional with regard to their personal circumstances.

Questions or feedback? Please email us at nextmove@penton.com.