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Vestmark Feature Lets Advisors Trade Options Across All Accounts

Financial advisors use options in 21 percent of client accounts and they expect to increase that to 30 percent by 2020.

A popular investment management software company launched a new feature enabling financial advisors to trade options across all of their client accounts, rather than one by one, saving some money managers significant time.

Vestmark, the Boston-based firm that provides portfolio management and trading software used for more than $850 billion in assets across 2.5 million accounts, added the options module to its core VestmarkONE product, which is used by broker/dealers, asset managers, bank-trusts and advisors.

Prior to the new module, VestmarkONE users implementing options strategies in retail managed accounts had to do so for each one individually, a cumbersome process. The module allows advisors to block trade and make changes across as many accounts as they want, including centrally and separately managed account programs, Vestmark said.

The module also includes risk management features. It automatically restricts securities underlying the contracts to prevent overexposed positions and proactively alerts advisors of accounts with expiring options. It also performs compliance checks before trades to ensure they are within restrictions set by the institution an advisor is affiliated with.

Lauren Hunt, vice president of product marketing at Vestmark, said firms also have the flexibility to establish different guardrails for each of their business segments.

Vestmark expects advisory firms will roll out pilot programs to select wealth managers then broaden the release. Hunt said Vestmark has already been working with a handful of firms on the module leading up to its official release but declined to share which ones are made available to advisors.

Omnibus implementation of strategies won’t impact accounts following models either, avoiding false rebalancing alerts or model drift notifications, according to Vestmark.

In 2017, financial advisors said they used options in 21 percent of client accounts and they expected that to increase to 30 percent by 2020, according to a report by Cerulli Associates and the Options Industry Council. Observers say that’s happening for a few reasons.

Steve Sears, the chief market strategist of StratiFi Technologies, a venture capital-backed risk management software company, said that over the last 10 years more people have recognized volatility as an asset class and driven them into the options markets. It wasn’t always the case, but institutional investors now account for more of the options contracts than retail investors (roughly 30 percent).

Retail investors are now seen as the next frontier for options growth and any technology that can scale trading is “one of the holy grails” for advisors, Sears said.

Poor technology and difficult implementation of options strategies are two of the barriers keeping more advisors from using them, said Eric Cott, the director of Financial Advisor Education at OIC. With those pain points relieved, more advisors are eager to learn about them.

“The efficiencies offered through the block-trading of options may encourage more firms and advisors to leverage options capabilities in their portfolio strategies going forward,” Vestmark CEO John Lunny said in a statement.

That’s especially true right now, following relatively calm historic gains in 2017, market volatility returned this year, and advisors are increasingly seeking income generation and downside protection for clients through options. Cott, who was previously an advisor and manager at Bank of America’s Merrill Lynch, also said offering those strategies is a differentiator for advisors.

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