Jack Sharry: Welcome all thank you for joining us for this week’s edition of WealthTech on Deck, really Associates has been a leader in providing market intelligence and strategic business recommendations for decades. They look to arm their financial services clients with data research and advice they need to grow. Recently, it’s really conducted research on what managed account sponsors are doing around household level management sometimes called UMH, or unified, managed household. Today we will talk with Matt Belnap. Matt is the Associate Research Director at Cerulli and conducted the research. So Matt, welcome to WealthTech on Deck.

Matt Belnap: Jack, thanks for having me. And thanks for the kind introduction.

Jack Sharry: Sure. So I think we would all agree that the unified managed household or UMH has been that elusive holy grail for much of my career, and you’re a little bit shorter than I am along those lines. But certainly, it’s always been at the heart of things. What’s the research show is firms look to connect all the dots of managing multiple accounts and products at the household level. Yeah, I

Matt Belnap: think Jack. So it is the Holy Grail. As you said, this is something that managed account sponsors are thinking about, they’ve been thinking about for a long time, no one is really there yet everyone’s taking steps to move towards it. But stepping back a little bit, there’s other consolidation that the sponsors are really trying to do as well before they can even think about getting to a household level. I mean, the una has seen pretty, pretty standard adoption across managed account sponsors, but it’s not as if every asset is contained within a UMA with those Overlay Services. So there’s that still in progress and a lot of sponsors, trying to convince advisors to move assets into their Yo Ma, a unified advisory platform as well to one consolidated platform where the advisors can give advice from things something like a Morgan Stanley Wealth Desk or Merrill One. That’s another level of consolidation that sponsor firms are working on and have been working on for a long time. And we asked them the question every year, you know, how long do you think this is going to take? And year after year? The most common answer, it’s going to take more than two years. So it’s, it’s still, that’s a point of consolidation that they’re still working towards as well. And then, and those are, frankly, a little easier to achieve than true householding, as you know, which, you know, that that holy grail, it’s takes a lot of work and a lot of coordination to coordinate across the household. So they’re working towards the household. But there’s also these intermediate steps that the sponsor firms are trying to take as well to try and get there. But what our research did show is, this is on the list of their priorities. You know, we asked them, you know, how much of this is a priority for you, around a quarter of a managed account sponsor said, this is a serious priority for us. So this is research that we conducted in the middle of 2022. We’re in the process of kind of refreshing some of these questions right now. So 20, around a quarter said, this is a substantial priority for us. And a little over half said, this is a moderate priority for us. So these firms are taking budget, they’re allocating money, they’re trying to find ways to make this work. And, while no one’s really unlocked it yet. It’s top of mind for a lot of sponsor firms. Sure. Matt why don’t you go a little deeper? That’s really interesting. There’s a bunch there that I’d like to ask more about. But before we do that, let’s talk about the research itself. What did you learn what was on the minds of these advisory leaders? How did you go about the research talk a little bit more about that detail? They will talk about what they said and what their view is going forward? Absolutely, yes. So it’s a really Jack, we really have kind of a two part research philosophy, where we’re going to mix in qualitative calls with senior executives at managed account sponsors. So we do around 20 to 25, sometimes up to 30. Of those, we talked to between 20 and 25, managed account sponsor executives, who are, you know, running platforms in charge of advisory services, you know, thinking about householding, asking them kind of what are you seeing how are you going about creating a unified managed household approach on your platform, you know, where are you in this process? So, that was one part. And then we ran a quantitative survey, where we are surveying senior executives at sponsor firms. And you know, we surveyed around 40, sponsor firms believe that they control around 85 to 90%, of managed account assets that we captured in that survey. So that mixture of qualitative and quantitative is a process that we use across thoroughly and we found to be very successful. When we talk to these sponsor firms. You know, it’s really interesting to hear kind of one some of the technology challenges that go into this, but also some of the challenges of the advisors themselves and their behavior, right. You know, when you’re managing holistically on how also love Well, no one’s going to know this better than the new folks at LifeYield. But it takes a reframing of the advisor client relationship, right became it becomes a lot less about did my mid cap value, you know, SMA outperform its benchmark and more, you know, are my assets really aligned to meet the goals in my portfolio, they’re sent out my investment policy statement, and not even, you know, in one investment policy statement, and you like your, your household investment policy statement. So, you know, that’s something that advisors always say they do, right, I manage your assets in a holistic way. It’s not something that in practice, it’s really hard to step back from performance. You know, performance is, of course, important. But, you know, it’s an easier conversation to have with your clients, honestly, then, you know, goals based planning and holistic management takes time. And that was, to me one of the most interesting takeaways from the research of yes, there’s technology challenges. And yes, you know, our entire, the entire managed accounts, sort of ecosystem has sprung up around account level management. So stepping up to household level management is a challenge for sure. But it’s the complete reframing of the advisor client relationship, as well. And something that I think is going to be pretty important for these advisors as they look to differentiate their practices going forward.

Jack Sharry: So let’s dig in there deeper still. So this is a classic onion, where we keep taking off the layers, I think you’ve hit on something, something, we certainly see it LifeYield, because we work with a lot of firms on just these sets of issues. So ultimately, just for those that are not fully familiar with what we mean by unified manage household, what we’re talking about is taking all accounts, products, and tools, frankly, for that matter, and coordinating them in a holistic, comprehensive sort of way. That’s ultimately what to UMH unified managed household is about with the idea that as you coordinate all those elements, you improve outcome, and you improve the view and the experience for both advisor and client. And that’s hard given legacy systems merges over time. I don’t want to put words in your mouth, I’m sure you found a lot of this sort of stuff. So you could maybe dig in a little bit these? I’m sure this is the sort of things that you heard as part of the research is how do you connect those dots? How do you coordinate it, given all the complexity that’s inherently involved in doing what we’re describing?

Matt Belnap: Yeah, I mean, the easiest answer that we got, but also a complex answer at the same time is takes a lot of time. And it takes a lot of money to make these coordinations happen. Right? And, you know, in some cases, we’ve talked to sponsor firms to where, if you want to even consolidate accounts to a UMA level, it sometimes requires giving them a new account number, which is completely repaper, in the account completely, you know, going back and talking to your clients, which is not something that advisors want to do. So, you know, even though these things are, it seems simple or pretty, pretty challenging. And when we talk to sponsor firms, you know, they came up with a couple of sort of key challenges there. One, it’s technology complications, right of, you know, getting the technology to work getting the technology budget to make that work, it was around, you know, three quarters of managed account sponsors that said that, that was their, their sort of key challenge to consolidating on a household level, then it was, you know, legacy platform complications of getting those legacy platforms to talk to each other, you know, and to work together towards this consolidation. And, you know, coupled with that, you know, kind of unwinding that old for infrastructure that’s based on an account level, and rewiring it to be focused on a household level. And, you know, some of these challenges are things like, can you have a super concentrated position in one account that you normally wouldn’t allow? If there was just managing for, you know, an investment policy statement for one account, right, can you have maybe one, you know, large cap account there, but if you have, you know, the other asset allocation in the different pieces of the account, if you’re managing for the household, that makes sense. But if you’re thinking about it on an account level, you know, that’s gonna set off compliance, red flags and reviews and things. So, you know, being able to do this really takes up a complete reforming of you know, you’re compliant, not only your adviser relationships, but your compliance infrastructure, your back-office technology, your middle office technology, and there’s certainly a lot that goes into that. And, you know, when we talk to sponsors there, as we said, no one’s super far along in this. But what they are thinking about is, you know, something like an asset location, right? Asset location is something that might be a little bit easier to achieve. It’s something that advisors are kind of doing on their own in a more ad hoc manner. But sure, you know, what firms like yourselves and others are doing is offering the sponsors sort of the ability to algorithmically do it and lead to better outcomes and more efficient outcomes. And that is something that we see you take something that advisors doing ad hoc, it’s kind of the same thing with tax loss harvesting and direct indexing, right? You can do it a lot better and more efficiently if you apply algorithms. And you take some of that out of the advisors hand and let the computers do it for them.

Jack Sharry: Yeah, let me lay out some of things that we see. I’m curious if this came back as sort of a general observation, lots of people thinking about it, talking about it, examining it, studying it, and so on, we have lots of those conversations, for sure. Of course, we’re doing working with people that are doing what we’re describing, it’s very much a series of events, it’s not a, you know, boil the ocean one day, you know, and make that adjustment that quickly, it just doesn’t happen quickly. It takes it takes place over time. And, and our observation that tends to follow a sequence often it starts with asset location. You mentioned that in a moment. So I’m just going to lay out what we see in here. I’m curious if this came back. So you take it as a location, basically getting the right asset allocation located in the right account types. That’s essentially what asset location is. Another place to start is rebalancing. In other words, rebalancing at the household level. Another place to start is, typically with asset location and mine of proposal system, we’re doing that with a number of firms where they have a proposal on how to locate assets as a starting point. There’s only one firm right now, but many others, actually, there’s a few firms now, but the whole idea of Morgan Stanley, they call it intelligent withdrawals. In other words, how to manage multiple accounts in a tax efficient way, as well as a risk smart way, both kind of two sides of the same coin, as you manage risk and tax, they really need to be done in unison. So that’s another one. And yet another one, which is eventually will become part of a UMH is security optimization, just that’s the kind of the easiest, because you can kind of just start there, and then add capability. So did any of that come out? Are people still sort of feeling their way just trying to get at the sort of the basics of account opening and compliance and that kind of stuff? Talk a little bit of what you heard as you talk to folks?

Matt Belnap: I’d say, in general Jack, yeah, it is, you know, early conversations for most people. But you know, you brought up social security, that was something that came up in a couple of conversations with the sponsor firms, because it’s something that up there a lot of their advisors aren’t thinking about right now. And it’s kind of an easy value add and an easy win to say, okay, you know, this is something you know, as your clients enter the accumulation phase, it’s incredibly important, you know, do you delight and we’re not giving them advice around, you know, When should I start taking Social Security? Do you delay? How do I integrate this with my broader financial plan? So yeah, that was absolutely something that came up with several sponsors, the asset allocation across the household was another point of entry that came up a few times thinking about, you know, again, this is something that our advisors you’re doing in a bit of an ad hoc manner, right now, yeah, maybe we’re gonna stick up, stick all your income producing securities in a qualified account, right? You know, and then we’ll have things that aren’t gonna throw off income, you know, in your non-qualified accounts. But being able to take that and do it more efficiently and algorithmically is was something that came up with several sponsors as well. And then they are a proposal on a household, right, if you’re going to say, I’m going to holistically manage your assets, which is what advisors are telling your clients, that being able to, you know, have a proposal to say how you’re going to do that is key that came up a few times as well, I’d say those were sort of the three big points of entry along with kind of intelligent asset intelligent asset location, which we already talked about earlier.

Jack Sharry: Is there a recognition that taxes are the biggest issue? Is there an understanding of that? Or is that still emerging?

Matt Belnap: I think that that has absolutely emerged as a key, a key focus for advisors, you know, it gets back to, you know, it’s not something, you know, tax was kind of a third rail for advisors for a lot for a long time. So you know, stay away from that, talk to your accountant, you know, I can’t give you tax advice. But one adviser that we talked to, I think, put it really interestingly, and that every time I tell you to buy, or sell a security, I’m creating a taxable event, right? So you can almost say that, I’m giving you tax advice, when anytime I tell you to buy and sell something, so why not better manage it and better? Sure, you create better outcomes for your clients. And I think, especially for high net worth investors, you know, our research shows, you know, so their first priority is wealth preservation, right, they want to keep what they have the second priority year after year, and it’s right behind wealth preservation is I want to minimize what I pay in taxes. And, you know, for a long time, you know, advisors handled that by, you know, having relationships with the accountant, but as we’ve talked about, there’s things that advisors can do to make that better for their clients. And it’s not there’s work that gets involved, but it’s easily attainable. And that’s why firms are thinking about this, I think be up for those better tax outcomes.

Jack Sharry: Yeah, just a note for those that are grappling with that because As we’re working with some firms presently that are in this is par for the course forever with every firm at some point you have the conversation is this tax advice and get compliance and legal get involved and all the rest of it. Basically, the couple of few of the largest financial institutions in the world have gotten past that issue. And really, when it comes down to you’re not giving tax advice, you’re really just taking the known rules, and then applying technology to make sure that you don’t pay unnecessary tax. It’s all it is. But there’s a lot more legal brief that goes in between what I just said, and the reality. But the bottom line is that it all plays out. So clearly, the industry is grappling with this struggling a fair amount, I think across the board that that’s what we see sounds like it’s what you saw as well. So what do you think it’s going to take for that to move forward? Is it just going to be an incremental piece by piece competitive pressure to get stuff? What’s your view on how this will start to get to the other side of it, where it’s less of a like on tick asset location, which I think tends to be the kind of the first place that starts less of a thumbnail kind of view and more of implemented algorithmically driven, optimized kind of approach.

Matt Belnap: I think, what’s going to drive it is, you know, as you’ve talked about, Jack, you’re working with some of the largest wealth managers in the world on these initiatives, this them to, you know, start to bring it to market and then it creates competitive pressure for the rest of the market to keep up and drives them. But I also think there can be some bottom up pressure to this as well in then, you know, for the longest time, the way for an advisor to differentiate was, you know, I’m a fiduciary, right? Everyone’s seen the ads on TV of the alama fama fiduciary? That’s how I stand out, you know, I’m not collecting, you know, brokerage, you don’t pay me per trade, right? No one pays for trades anymore. Everybody’s a fiduciary, right, you can go across channels and get really good fee based advice. That’s not a way to stand out anymore. So I think the way to stand out for an advisor is there’s a couple of ways but, you know, personalization, and customization, I think is crucial. And to be able to personalize a financial plan for your household and to be able to, you know, personalize it to your specific tax situation. You have to your specific, you know, social security situation, to fully integrate that plan is a way for advisors to stand out. So I think that can also create some bottom up pressure on this of, yeah, I need the tools to create plans across the household, can you give them to me? And you know, I think probably, if I had to guess more the pressure is going to be, you know, top down. This is something that sponsors are thinking about at the home office level. But I do think that those, those advisors can create some pressure from the bottom up to get this done.

Jack Sharry: Interesting. A couple of anecdotes that you might find surprising and offline. I have some thoughts about for your next research, just people we know that are doing some really interesting and cool stuff. We’re happy to connect you with them. Yeah, that’d be great. What a big name you know, well, Franklin Templeton, they were the first to they came to us, we had the full shebang of asset location income generation. So scary. We did this 15 years ago. And we went to Franklin Templeton and they said, it’s too much we can’t do all that, particularly back then. And I said, could you just give us the social security piece? It’s probably worth like 14 years ago. But in any event, we use it. Sure. So we did it. We built this tool. That tool right now is used by 100,000 advisors across the industry, and not just in Franklin Templeton, but also places like Merrill and a bunch of insurance companies, New York Life and Northwestern Mutual and many more, Allianz, and that’s sort of a starting point. I do find that to be the easiest because the security tools are question is prominent and the clients by and interesting what Franklin Templeton will be doing a podcast on this coming up in a little bit. They started a program called GOE. Goals optimization engine. And that’s UMH, it’s going to be available through advisor engine, which is a property now Franklin Templeton it’ll be out the summer it’s being built. It’s actually built but it’s it’ll, it’s going through tests, what have you. And it started with sole security. And then goals. Optimization is asset location and also income generation and includes security. So sort of interesting, because we’re having conversations with them just to make this information available to the marketplace. So we’re that discussion now. It’s sort of interesting how this evolution I’d like to get your thoughts on this evolution, because it seems that’s how it’s gonna play out. The other one, we just had a conversation yesterday, a client, we haven’t announced it yet. It’s a Silicon Valley startup. For another podcast. It’s a fascinating story. But if you want to check it out, it’s called playbook. What they do is it’s all online. They’ve done their research online, they’ve done through social media, they advertise it. And they’ve got 75,000 investors that are using the tool. And it’s basically how to maximize your 401k match, things like that out. It’s all around tax because guess what clients said they want to taxes were most important to them. And their target audience, by the way is high income earners that are 30 years old. So average client is 30 with $150,000 a year income. That’s who they their target is. And those folks are good Here’s so one of the issues, I think, and love your comments on this one, especially in terms of the research, is there’s a lot going on in this space, there does seem to be a clear recognition, taxes matter, there is a way to get around any compliance concerns, legal concerns. But it’s hard, especially with legacy systems to pull this together. Because you really have to have some pretty cool algorithms to make it all work. Is that’s the sort of stuff that you’re hearing is just that level of confusion. And what do you think it will take to get people beyond the confusion and onto building stuff to make sure that they’re doing a better job and providing more holistic advice?

Matt Belnap: I absolutely echo your thoughts on the confusion. Jack I mean, I think those sorts of questions for some of the firms that haven’t begun anything yet, you know, where do we start? How do we even begin to move into doing something like this? You know, how do you eat an elephant? Right? You don’t want one bite at a time. But where does that first bite go? And I think that’s something that a lot of firms are grappling with, in terms of, you know, how does this happen? I think listening to clients and hearing their demand, right, of, you know, what, I want to minimize taxes, you know, I want to better integrate social security and or think about, you know, what do I want from my advisor relationship? Right? I think that a lot of this is evolving. And I kind of consider myself a bit of an example here, you know, I’m sure I thought to always be my own financial advisor, right? I don’t need to pay anybody to do this. But in the last three years, I’ve gotten married and bought a house, and I have a kid, which is, so I, you know, I’m checking stuff off on the on the Game of Life, right. But I’m more complicated now. And I can really use somebody to say, you know, this is, you know, when I was just picking investments for my 401K and investing for fun on the side, it was great, right? I can do it. But now, you know, what, how do I maximize? You know, 529 plan savings? You know, what, you know, what kind of assets? You know, my wife’s a teacher, she has a pension, you know, how do we think about that? And, you know, in terms of when I’m thinking about 401 K savings? So, I think, you know, these are the questions that firms should be asking themselves of, you know, one, you know, how do we better serve our high net worth investors, right, that’s always what they’re going to think about most, but also, how do you attract the next generation of clients? You know, and I would consider myself and that in that next generation of clients, and how they would how they would get me would be, you know, we have tools to create a plan for you to think about, you know, how you’re going to meet your objectives. And, you know, my objectives right now is get eight hours of sleep at night with the baby, but financially, like, yeah, I want to think about college, I want to think about retirement, how do we create the financial security for ourselves and for her down the line? You’re not? So give me those tools? And I’ll sign up as your client?

Jack Sharry: Sure. Well, it’s fascinating, I think, I think you’re a poster child for the challenge. That’s ahead and that firms are working on it. They’re trying to figure it out. And it’s much more than did my mid cap do better than, you know, than the benchmark? Yeah, it’s so yesterday’s news. I’m sure you found that stated earlier. So now, it’s a matter of how do I look at all of it? 401k 520? And all the things that you talked about? How does that come together? And how do I have sort of a steady savings and one of the big things, frankly, that we see with the asset location, that if you start saving, and taxable accounts, and as well as your 401k, the earlier you start, and the more you maximize asset location, you’re gonna just tax deferred compounding as well, all that’s happening here. This is not, we used to call it when I was way back in the day, the magic of tax deferral, well, it is magic, your money just grows a lot faster if you’re not paying taxes, just how it works. So it’s all to the good for the client. And certainly for the advisor, as they get their arms around it. The challenge is you’ve discovered is really how do you as a firm, how do you get that together? So

Matt Belnap: just one thing I want to add, I think you make a really good point around the the power of tax deferred. And, you know, just one little story I’ll add is, you know, we were talking to an advisor who was pretty far along in terms of, you know, tax man tax management for their clients. And he said, I can charge more, because taxes are measured in percent, and fees are and basis points, and there’s value to be had there. And for advisors, you can maximize this. Yeah,

Jack Sharry: we’ve done some studies on that. And, frankly, as a senior executive at a major firm, who will go unnamed pointed out, because they have tools in place built into their infrastructure, their ecosystem, around tax and risk, they do both, and they do it in a highly coordinated and evolved way. So the other big factor to consider besides security that’s off to the side for the moment, but that’s another thing they do. But the other key is cost. And his comment was he said we don’t have to worry about so much about costs, because in terms of what we charge our clients because we provide so much benefit of the risk and tasks side that the cost becomes just not a big issue and it’s worth it that we’ve received We’re demonstrating value now. So using frankly our tools, you can quantify the benefit in dollars and cents. And when you look at it go, wow, why wouldn’t I do that? If I could? Yeah, Yep, absolutely. So Matt, this has been great. Really enjoyed our conversation. And thanks for your observations and sharing the research. This has been terrific. As we look to wrap up, what would you like to share with our audience in terms of three key takeaways from our conversation? In your research? Please share.

Matt Belnap: Yeah, so I think for me, the first key takeaway is one, there’s obviously a lot of work that needs to go in on the technology side. But don’t neglect kind of the advisor and client education side if for the firms that are thinking about kind of this householding approach, right? Because it is for clients used to going in and having conversations, you know, around, what’s my alpha, what’s the beta, what’s our tracking here to the benchmark, it’s going to, you know, it takes education to get them to expect to talk about holistic, financial advice. The second takeaway is sort of related to that, and this is a data point I wanted to bring up, and I’m glad to get into now is, the advisors want this, you know, when we talk to advisors, they want to do this, they want to differentiate in this way. And I think the sponsor firms realized that less than 20% said advisor reluctance was a key barrier to implementing a household level approach. So your advisor force, if you’re a sponsor, they want this, you know, so give them the tools to do it. And then the third takeaway would be, doesn’t have to happen all at once. I mean, if we look, you know, you Ma has been talked about for around 20 years now. And it’s not still not fully realized, you know, for the full potential for managed account sponsors. And for advisors. So, you know, take little steps, you know, find ways to integrate social security, find ways to do better asset location, you know, in a, in an algorithmic way, rather than an ad hoc way for your advisors, you know, don’t wait for the perfect time to completely flipped to a household level approach, because it’s not going to be there. Right. It’s gonna have to be piece by piece.

Jack Sharry: Terrific. Well, this has been wonderful, Matt, really appreciate the time. Appreciate the perspective. Look forward to the ongoing research that you’ll be doing on this. I have a couple of things we’ll share offline, that might be helpful. That would be great. It’s been a real pleasure. Enjoy the conversation. And to those of you who are regular listeners to our podcasts, we’re going to talk about our favorite question I should say, which is, Matt, what do you do outside of work that you’re excited or passionate about? And people might find interesting or surprising.

Matt Belnap: So I was hoping we wouldn’t have time to get to this question, Jack. Because I have a six month-old. I know the answer. There’s nothing interesting or exciting about me right now. She’s been great. What I will say I don’t share this often with folks around Boston is I’m a Pittsburgh sports fan. So I’m a Steelers and penguins fan. So I don’t I don’t tell people around here. But it’s creating real real conflict with my wife in that I’m trying to raise our daughter as a Pittsburgh sports fan in Boston, where she’s very much Boston sports. So there’s been some there’s been some conflict here. I’ve spent probably more than I should talking about financial plans on Pittsburgh onesies trying to get to be a Steelers fan. So I’ll report back how that goes. That’s been. That’s been my big parenting challenge so far.

Jack Sharry: That’s great. Good for you. That’s wonderful. So Matt, thanks so much. It’s really been a pleasure to have this conversation. Appreciate your perspective and research the insights for audience if you’ve enjoyed our podcast, please rate review, subscribe and share what we’re doing here at WealthTech on Deck. We’re available wherever you get your podcasts, Matt, thanks again. I really appreciate the time and perspective.

Matt Belnap: Absolutely, Jack. Thanks for having me. It’s always great to connect with you.