Unlocking Real Value Blog

AK In The News: Platform Pumps Up SMA Menu, Crafts Models, Adds New Clients

Today’s Fundfire (A Financial Times Service) featured an article on FolioDynamix adding a new client in the bank trust department space. I was asked to comment on whether or not this signals a new trend – banks turning more toward third-party providers of investment platforms rather than developing them on their own – and what effect this has on SMA managers.

I don’t think that this signals the beginning of a new trend, because in fact, their has been growth in outsourcing for many years. It may be new for FolioDynamix, and signal a new direction for their business, but banks that have expanded into the fee-based business arena have for many years faced the issue of building it v. buying it.

And frankly, if you don’t have the expertise, personnel or resources in-house, it is easier to buy it. While ultimately the end fees to clients may be higher because you are paying a third party, it has been a way for banks to get up and running faster and quicker.

As to the question of what this means for SMA managers, to quote from the article:

“As the shift away from proprietary offerings toward more open architecture continues, turnkey platforms, like FolioDynamix can pose an opportunity for model SMA managers to expand their distribution without having to deal directly with small bank research teams, explains Andrew Klausner, founder and principal of consultancy AK Advisory Partners.

“If a bank or trust is new to the business they’re not used to managers having to come through,” Klausner says. “From a marketing point of view it’s easier to get in with these [turnkey] firms that will showcase you.”

“It’s definitely a way that you can reach a lot of bank trusts through a single platform, as long as you’ve got the product that they want,” he says. “Getting on a platform like FolioDynamix will help, but [managers] have some work to do on their own to differentiate themselves and make their options valuable for a bank trust.”

For banks, “it makes sense to hire these third party TAMPs [turnkey asset management platform] that offer models as well,” says Klausner, the consultant. “The easiest thing to do is go out and buy the whole bundle.””

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