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SMA Sector: New Entrants, Clients, Evolving Technology

Despite heading into the usually slower summer months, the separately managed account industry is buzzing with activity.

BISYS, the outsourced services provider based in New York has signed the second client to its new WealthManager separately managed account (SMA) platform that went live earlier this year. HSBC Investments (USA), which currently uses BISYS as the outsource provider for services to its mutual fund complex was the first to quietly ink an agreement to use WealthManager. BISYS' second such client is Fiduciary Asset Management Co. (FAMCO) of St. Louis, which manages $15.2 billion and is brand new to the SMA arena.

WealthManager is able to bring the same automation to the separately managed account world that BISYS brought to the mutual fund industry, said Fred Nadaff, president of BISYS Fund Services. That includes opening and maintaining accounts, imaging, workflow, automatic corporate actions, automatic pricing feeds and all other back-office functions and processes.

Certainly not the first to market with an SMA platform, BISYS took its time building the platform so that it could build to what will likely become the industry's standards, although those standards are still evolving, Nadaff conceded.

While BISYS is hoping its mutual fund clients who have built parallel SMA businesses will provide the real traction for WealthManager, there's interest from all corners, Nadaff said.

FAMCO, for instance, sponsors no mutual funds, although this institutional investment management firm sub-advises four closed-end funds, and is the plan sponsor to the $12 billion General Dynamics pension fund. It also has some high-net-worth clients.

FAMCO decided to parlay some of its investment capabilities that were garnering attention, in particular its covered call option strategy, into the separate account world, said Wiley D. Angell, executive managing director and director of the firm's SMA program.

Early on it decided not to build an internal SMA servicing capability so as to avoid taking on fixed personnel costs, he added. FAMCO is currently negotiating with a number of wirehouses about joining their wrap programs.

Other new entrants to the platform technology side of the SMA business are in the wings, including Global Investment Systems (GIS) of Hackensack, N.J. The firm, which now offers accounting and recordkeeping services for mutual funds, hedge funds and partnerships, expects to shortly team up with an outside company to offer an SMA platform, confirmed Mary Pizzichino, GIS director of U.S. sales and marketing. Although she declined to name the firm or provide further details, GIS hopes to launch the new platform by year-end.

While new players are entering the market, other, more seasoned SMA participants are focusing on platform tech upgrades.

Last November, CheckFree Investment Services of Jersey City, N.J., announced that its widely used CheckFree APL SMA platform would transition to the next generation, Web-based CheckFree EPL (Enhanced Portfolio Lifecycle).

Going Microsoft

The platform uses technology, and the transition is occurring one bit at a time.

The first phase, dubbed Workflow for New Accounts, rolled out in March of 2004. This module allows for automatic account opening and streamlines the process eliminating the need for multiple data entries, thereby reducing errors. The second module is a reconciliation tool that "tackles one of the biggest pain points," said Hilary Fiorella, vice president of marketing at CheckFree.

Through this tool, firms can reconcile portfolio accounting with multiple data to reduce costs and errors.

Other CheckFree APL modules will similarly make their transition to the Web-based EPL technology, which promises to also sport new capabilities such as additional asset classes and the flexibility to incorporate future industry innovations.

The goal is to have all functionality switched over by April 2006, Fiorella said. At that time, all CheckFree APL clients will be required to make the full transition. But CheckFree won't let clients go it alone.

"We don't expect clients to have the budget for resources to go to EPL," she said. So, instead, CheckFree is staffing up and its staff will handle client conversions.

CheckFree Classic'

Many of CheckFree's 300 clients have already agreed to participate in the planned beta testing, which will include running the original-flavor CheckFree APL system parallel with the new recipe CheckFree EPL, Fiorella said.

"Some clients believe this will be a huge competitive advantage to be first in line [with the new technology]," Fiorella said.

But CheckFree already has takers clamoring for its EPL upgrade.

Brinker Capital of Berwyn, Pa., which now manages $5 billion, has signed on to extend its CheckFree APL service contract through 2010. Brinker has been using CheckFree's SMA platform since 1995. This is the first client to fully agree to make the transition journey with CheckFree, largely because of the timing of its recent contract renewal, Fiorella noted.

Just to be sure others follow, CheckFree is dangling a monetary carrot, she explained. Clients who renew their contracts with the understanding of the coming evolution to the EPL technology will receive current pricing. Once the full EPL evolution has occurred, there may be a different price to then sign on, she hinted.

CheckFree is not the only firm bent on enhancements.

PFPC Managed Account Services of Wilmington, Del., which offers the Advisorport SMA platform, has been talking up its capability of offering the next-generation of unified managed accounts.

Advisorport's "unified managed portfolio" allows for a holistic viewing across several related registrations, in recognition of the fact that often a client and perhaps a spouse or significant other will have multiple assets in multiple account types with multiple, but related, registrations, explained Steve DeAngelis, president of the PFPC SMA unit.

"These have to be established as separate accounts and the money is not fungible," DeAngelis counseled.

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