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Home Office News: UBS Adds More Models to SMA Wrap Program, Schwab-TD Integration Costs Higher Than Expected, and More

By Julie Daclag April 30, 2021

Below is a look at some changes major distributors have made to their platforms that may have flown under your radar in the past month, collected from Distributor Profiles, a service of sister publications Ignites and FundFire.

UBS adds new models to wrap program

UBS plans to add "strategist model" portfolios to its Access separately managed account wrap fee program in June, according to a Securities and Exchange Commission filing in March. Third-party and affiliated investment managers will design the portfolios.

The model providers will provide third-party overlay managers, who are responsible for trading the portfolios, to the strategist models. The overlay managers generally implement the model provider’s recommendation for the strategist models.

Investors don’t pay overlay manager fees for the models, according to UBS’ program brochure. UBS pays overlay managers for the trading services they provide. Investors can also obtain premium services, like tax management, with costs ranging from 10 basis points to 13 basis points.

UBS will not compensate third-party model providers. Instead, the model providers will earn management fees for the management services they provide to the mutual funds and exchange-traded funds in the portfolios.

The wirehouse also lowered the minimum investment for its Access program from $50,000 to $25,000, as disclosed in the March filing.

UBS also plans to add new low-fee mutual fund P2 share classes to its Pace mutual funds, according to a separate SEC filing. The Pace funds are typically found in the “Personalized Asset Consulting and Evaluation” program, which offers portfolios of either proprietary Pace funds or a mix of proprietary and third-party funds.

Investors can only find the new P2 shares in advisory programs where UBS Asset Management has investment discretion. Institutional clients can also access the P2 shares, which don’t charge 12b-1 fees or front- or back-end loads, the filing states.

Schwab-TD Ameritrade integration costlier than expected

The integration of the brokerage platforms of Charles Schwab and TD Ameritrade may cost more than expected, amounting to $2 billion to $2.6 billion in total expenses, executives said during an April 22 call with analysts.

Executives added that TD Ameritrade would likely not be fully folded into Schwab until 30 to 36 months after the deal closed in October last year. The initial estimate ranged from 18 months to 36 months.

But Schwab predicted the deal would produce additional revenue of $800 million more than first thought. Estimated total cost savings and added income would be between $4.3 billion and $4.8 billion, the executives said.

Costs increased after Schwab changed some of its plans when trading volume and client activity surged early this year, Schwab chief operating officer Joe Martinetto said during the call. Clients at Schwab and TD Ameritrade had a record trading volume of 12.3 million trades in a single day during the first quarter.

To address higher volumes, Schwab is building a "massive scalable back office" to increase its capacity, said Martinetto. The firm is also moving its operations to cloud services to handle future trading spikes.

The upfront costs for the improvements are higher but will result in a more scalable technology platform, Martinetto said. Roughly half of the cost was due to volume-related changes, he added. The remaining expenses were for TD Ameritrade client conversion to the Schwab platform, digital and client self-service features, Martinetto notes.

Schwab to launch semi-transparent ETF with Ariel

Charles Schwab has partnered with Ariel Investments to launch its first semi-transparent exchange-traded fund, licensing the New York Stock Exchange’s Proxy Portfolio methodology for its nontransparent structure.

The ETF invests in small- and mid-cap U.S. stocks aiming for capital appreciation while also meeting environmental, social, and governance criteria.

The fund’s subadvisors are Ariel co-CEO and chief investment officer John Rogers, and executive vice president and small-cap portfolio manager Kenneth Kuhrt, according to a registration statement.

Envestnet launches portfolio construction for FAs with HNW clients

Envestnet PMC has launched a portfolio construction service, Private Wealth Consulting, for financial advisors who work with high-net-worth clients. It offers discretionary portfolio construction for investors with a minimum investment of $1 million. The program features tax and impact overlay options.

Envestnet created a HNW solutions team of eight client portfolio managers to provide service support. The solutions team is partnered with PMC’s portfolio management team to develop and manage custom model portfolios.

To access the service, advisors must first submit a proposal on behalf of their client about their risk tolerance, required return, and investment strategy biases, according to PMC managing director and head of investment specialists Michael Featherman.

Clients can choose PMC as a manager and outsourced strategist to develop custom models through the firm’s unified managed account platform.

The portfolio managers then present recommendations for the clients using PMC’s research and portfolio management teams.

Clients may choose to include third-party equity and fixed-income separately managed accounts, ETFs, strategist sleeves, and Envestnet’s proprietary direct indexing quant portfolios, Featherman said. Clients can also pick from various investment styles, active strategies, active and passive, cost-sensitive, factor-based, impact, and decumulation strategies.

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Tags:  Finding and winning new clients , Client retention , Technology , Fees and compensation , Staffing and recruiting , Investment strategies , Portfolio management , Charles Schwab , Envestnet , TD Ameritrade , UBS Asset Management , UBS , Securities and Exchange Commission

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