Building Bridges to Breakaway Advisors: How Asset Managers Can Maintain Critical Relationships

By Vestmark Inc., Resources


As legacy investment platforms are continually evolving, challenged by new investment strategies and new ways to package client focused solutions, so too are the established relationships among asset managers and their top advisors. Many wirehouses and broker dealer firms are restructuring their investment platforms beneath pressured fee structures for their advisors. Eager for more flexibility and less oversight, many advisors “breakaway” to establish themselves as independents to better serve their clients.

With this wave of migration, where does this leave an investor’s assets and the financial advisors who manage them? Advisors want to maintain their previously established investment solutions as they assure clients that changes to their affiliation model will be in the clients’ best interest. But an advisor’s move to independence for the betterment of his/her business is a difficult vision to sell if it necessitates a taxable event for the investor. Similarly, asset managers want to maintain and expand relationships with key advisors, offering a range of new products that can be distributed and managed efficiently across a spectrum of affiliation models. But that is not always so easy or smooth.

A bridge over troubled waters

When a financial advisor is affiliated in a captive or employee-based model – like a wirehouse – some of the SMA strategies used in client portfolios are only available at that wirehouse firm – even if they are strategies from third-party managers. When an advisor leaves the firm, the client’s holdings in the ‘non-portable’ strategy has historically meant a full or partial liquidation and move to cash at the new firm or custodian in order to invest in a new strategy.

Today, in this scenario, when an advisor approaches a manager to ask “how can I maintain your strategies for my clients as I go independent and custody with xyz custody platform?” the asset managers often don’t have a good answer for them. Even when there is a technically workable solution, it’s highly un-scalable – managers can sustain current advisor relationships by working directly with these breakaway advisors one by one – often an expensive and time-consuming proposition that only gets more complicated with scale.

But what if there was a better way?

The alternative is a hub that serves as an efficient meeting ground for all parties involved, facilitating access for advisors while reducing overhead for asset managers. Using a model marketplace like Vestmark Manager Marketplace (VMM), managers can make these strategies available in the hub, and as the advisor goes independent, s/he can access those third-party models and maintain continuity of investment solutions, avoiding unnecessary taxable events for their clients.

VMM becomes a neutral space for advisors and managers to conduct business, a platform that can create immediate portability for previously non-portable investment solutions.

Once signed on with VMM, asset managers only need to post their models and strategies once to give them universal exposure to all participating advisors. This immediately gives managers a helpful response when a breakaway advisor approaches them about the portability of a previously difficult-to-move SMA strategy. This enables the asset managers to retain the assets and enables the advisors to help clients avoid liquidating securities and creating taxable events.

Using VMM is essentially a win-win for all parties. Asset managers get to keep and expand their AUM, while advisors can hold on to previous products and shop among new ones, and even outsource the implementation and rebalancing of strategies to Vestmark if that works better for their newly independent firms.

Getting started is easy. Participating asset managers introduce their advisors to Vestmark, and we handle the brief and simple onboarding process to get them connected to VMM – which is custody and technology agnostic on the advisor’s side of the equation.

Vestmark Manager Marketplace is a compelling offering that just becomes a better one over time. The larger the platform becomes – the more managers, products and advisors involved – the greater the value to all participants.

Interested managers and advisors can learn more by visiting or calling 781-224-3640.

By Vestmark Inc., Resources