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Managed Account Offering Takes Aim at Costs

In the managed account market, what difference can fees make? This week Wealthcare Capital Management, an RIA and provider of wealth management advisory services in Richmond, Va., announced its new Unified Managed Household program will charge about 50 basis points less than other managed account platforms. The program will be offered through Wealthcare’s patented advisor platform, a system that focuses on reaching investor goals as opposed to beating financial benchmarks.

“Our systems have been engineered to deliver a lot more services in a manner that’s much more efficient than what other platforms do,” President and CEO David Loeper said. “For your typical independent RIA or a breakaway rep who’s trying to replace the managed account platform in his firm, they’re normally going to have at least 75 basis points and oftentimes 125 basis points before the advisor makes a nickel. …We can easily support most advisors at all-in costs for everything other than their fee at 50 basis points or less.”

Lowering costs for managed accounts can be done with top-end technology, says Cerulli Associates analyst Bing Waldert, but it’s not a primary goal in the space. “I don’t see most managed account providers competing on price,” he says. “You get into managed accounts, you get into the higher end of the advisory industry. Personalization and relationship matters more than price. Certainly if you’re an independent advisor who owns and operates your own business, you are looking for ways to bring costs down.”

Alois Pirker, an analyst with Aite Group, sees the cost issue for managed accounts differently. “Fees have been a big topic lately. If you work with the ultra high net worth, maybe less so,” he says. “If you can say you’re 50 basis points less for the same service, you make an impression.” Companies that are in the best position to charge less tend to have large scope and can respond to market changes, he adds.

With $475 million in AUM, Wealthcare holds a series of patents on the financial advising process; the most recent was approved in August. (The company filed a patent infringement lawsuit against UBS AG last summer and hopes to reach a settlement, Loeper says.) Wealthcare’s UMH suite has been used by 26 advisors for more than a year; it provides a broad range of services for advisors: financial planning, managed portfolios, tax and trading systems, and management and fee billing for held-away assets, among others. Loeper, who admires the work of Ayn Rand and incorporates her philosophy into his practice management, said advisors could lose sight of their clients’ goals when they focus on beating benchmarks.

“Normally what you see in these managed account platforms is performance reports that look backwards and show client reports relative to benchmarks. What we’re doing is a forward-looking, funded status to the goals that the client values,” Loeper says. “Clients tend not to focus on benchmarks. The benchmarks they value are their life goals. … I’ve never had a client ask me, ‘I don’t really care about whether I’ve got enough retirement income and can afford to maintain my lifestyle. What I’m more worried about is the blend of Russell style indices.’ That’s just not what clients care about.”

Trey R. Isgrig, a CPA and head of Isgrig Capital Asset Management, an RIA in Cincinnati, Ohio with $42 million in AUM, has been using Wealthcare’s system since last year. Isgrig says the conversations he’s had with clients on their goals helped when markets started to ride the roller coaster back in August. The changes that were required involved tweaks in the clients’ goals rather than wholesale changes, he says—deferring retirement a year, for example, or saving a little more money.

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