Sleeves, Tagging, and the Pathway to Improved Accounting

By Mark Peabody, SVP of Products and Engineering


In this blog, Mark Peabody, SVP of Products and Engineering, provides us with an overview of sleeve-level accounting and spells out the advantages of this type of accounting when trying to achieve a granular view of client accounts.

How would YOU define sleeve-level accounting?

Sleeve tax-lot accounting is a portfolio accounting technique in which holdings for a single custodial account are tracked in separate account sleeves. Effectively, each sleeve within an account is managed as its own portfolio with its own set of tax lots, cash, and transactions.

Why is sleeve-level accounting so important and what does it enable?

There are several key advantages to using sleeve-level accounting instead of blending, tagging, and other approaches. Sleeve-level accounting is fundamental to supporting robust multi-model, multi-manager, multi-investment programs.

One of the benefits that sleeve-level accounting offers is the ability to provide accurate, GIPS level performance at the individual sleeve level. This provides the user with accurate performance reporting for each manager model within the account’s allocation. You cannot get this level of performance reporting when you’re blending or tagging.

The VestmarkONE® platform’s sleeve-level accounting also supports sleeve-level trading discretion, allowing different managers at the account level and at the individual sleeve level access, as well as advisor directed sleeves, within the same custodial account. This is important because it supports different overlay modes: active, passive, and hybrid. The VestmarkONE® platform also allows a transitional sleeve that helps manage and separate transitional low-cost basis assets away from the actively traded portion of the portfolio.

In addition, sleeve-level accounting allows incorporating a personalized index solution as a sleeve in the overall account allocation. As opposed to viewing customized portfolios separately, robust sleeve tax lot accounting enables these sleeves to be managed and optimized alongside other accounts.

What other vendors offer this type of functionality?

Other firms have implemented position tagging versus true tax lot sleeve accounting. In many cases, these systems were retrofitted to support model of models while the VestmarkONE® platform was built from day one to support multi-sleeve accounts. It’s hard to provide many of the most desired multi-model trading features like sleeve level trading discretion and inter-sleeve trade netting without a foundation that supports sleeve accounting.

What were some of the challenges you observed with different accounts with different sleeves?

We saw two primary ways accounts were being managed; one was blending and tagging. Blending models into a single security model is often viewed as the genesis for the UMA. In this scenario, the user might have multiple models that are provided by different managers. They would take these models and blend them together. The good news: this is pretty easy to do. You simply need to run the calculation and then you see the exposure that those models provide. The bad news: you don't get manager performance, so you cannot separate trading discretion by manager, and cannot cleanly track positions by manager. You can't tell what each manager model contributed to performance of the overall account. But that information is critical for our clients, who need to be able to report it to their investors.

The second way accounts were being managed was by tagging, which was better than blending because it lets you distinguish what positions belong to which model. However, tagging doesn’t solve the big challenge of cash management. A system that tags doesn't separate cash by model and maintains one account-level cash position. This creates significant cash management issues when multiple managers are trading within a single account. How much cash belongs to model A and how much belongs to model B? How much belongs to the overall account? Unfortunately, you can't really tell. This is one area in which sleeve-level accounting really shines. Each sleeve has its own cash position and it is clear how much cash belongs to each model and how much is available, allowing different managers to trade their sleeves in the same account.

What is the history?

Some of the well-known systems had been around for a couple of decades, going back to 2005. That was before multi-manager products were around. Vendors then struggled to shoe-horn multi-manager products into the existing accounting engine since they were not designed for sleeves. The big question to address was: how do we bolt on a multi-manager, multi-model solution into our current system? We saw the market need for a better UMA platform, and built a sleeve-level accounting engine from the ground up to support the rapidly evolving market needs. Since 2005, we have continued to improve the platform, providing our clients with more options for managing multi-manager accounts based on our robust sleeve-level accounting.

What do you think, if anything, will replace sleeve-level accounting in the future?

Sleeve-level accounting will continue to be a cornerstone of how multi-manager, multi-model accounts are managed. But it is not the full answer. Managing allocations of multiple investment vehicles, say a combination of funds and models, would mean keeping everything in separate sleeves, even individual funds. This can be overkill. The evolution of sleeve accounting is intelligent, dynamic sleeve management. This is where single sleeves are dynamically created, allowing for investor’s allocation models to be driven by asset class and not by sleeves when necessary. This is in line with the way advisors and investors think about managing accounts, as opposed to making the technology drive how the assets need to be managed.

Where do you see Vestmark going in the next 3-5 years?

We are going to continue to innovate alongside market demand. We’ll strive to broaden and deepen our platform functionality. In the next 3-5 years, we will continue to work with our clients and others in the industry to innovate their advisory businesses.


Mark Peabody has played a key role innovating wealth management technology from the ground up. His pace of innovation continues to meet the ever-growing demands from Vestmark clients for improved efficiency. Mark and his team keep a close watch on the market pulse to ensure the software stays one step ahead of the industry.

By Mark Peabody, SVP of Products and Engineering