Overlay portfolio management is quietly but rapidly changing the future of wealth management. Overlay enables more customization, better tax management, superior risk control, lower costs and access to the research of third party managers. It enables wealth managers to implement any investment decision across all client accounts within one business day. And, it frees them up to spend more time with clients, personalizing and enhancing the investment experience.
Some portfolio managers may be reluctant to try out new strategies like overlay, so let’s explore what this technology is all about.
What is overlay portfolio management?
Overlay creates a new, easy-to-use method to provide customized wealth management. In this approach, every account replicates, with adjustments for tax, expenses and customization criteria, a blend of one or more model portfolios provided by investment analysts.
Overlay also lets you take advantage of the best investment research available, while making it easy to customize your clients’ portfolio and taking advantage of any combination of proprietary and third-party manager research.
Why overlay is growing
It’s pretty easy to understand the growth of overlay. All firms wish to lower costs. All firms wish to improve client service. Overlay enables both. It is the low cost wealth management solution and relative to current alternatives, it enables greater customization and greater consistency.
Firms that get the most out of overlay are those that make it the backbone of their entire wealth management program, using an overlay process to manage all assets, including:
- Proprietary and third-party (“open architecture”) research
- Equities, mutual funds, ETF’s and fixed income
- Mass affluent through ultra high net worth
Overlay provides firms with the tools they need to grow their businesses in a scalable way while improving client service and freeing up time for advisors to do what they do best—talk to their clients and make investment decisions accordingly.
Is it right for your firm?
Different firms will be motivated by different benefits. For some, it will be a desire to grow without cost. Others want to improve consistency and compliance—without giving up customization. Still others want to adopt open architecture easily.
Does it make sense for your firm? We would like to hear your comments.