They went back to their “bundling
play book” and developed the separately
managed “wrap account” at upwards of
300 basis points, all in. This re-bundled
the cost of investment advice and
management with transactions, letting
firms regain excess profitability via an
opaque product structure that included
money manager fees, underlying product
fees, platform fees, trading costs and the
obligatory advisor fee/commission, all
for one convenient fee. Easy peasy.
Combined with the marketing and
sales machine of tens of thousands of
incentivized brokers, “fee-based advice”
was once again king on Wall Street.
There are now trillions of dollars in
fee-based accounts across the brokerage
industry, quietly churning out record
revenues year after year for the big firms.
But the good news for investors is that
technology waits for no one — case in
point, the “robo advisor.” While the great
robo experiment did not work according to
venture capital-backed technology startup
expectations, the concept for using low-
cost security selection (ETFs), combined
with automated asset allocation/
rebalancing and unbundling it from a fee-
based account, did work, but ultimately,
only for some big online brands.
Now, robo advisors run by Fidelity,
Schwab, Vanguard and Blackrock are
in the range that’s less than a few basis
points range, or even “free” vs. what’s
currently upwards of 200-300 basis
points in a separately managed account
at a wirehouse or independent broker-dealer. But how long can this last for
these bundling brokers, particularly
as the technology unbundlers invest
hundreds of millions of dollars in
advertising to convince investors that
they are paying too much?
TAMPING IT DOWN?
Other forms of bundling and
unbundling also are alive and well
in various subsets of the wealth
management industry. Currently, the
advisor technology industry is in a
race to unbundle the turnkey asset
management platform (TAMP) in
the form of technology-enabled
“model marketplaces” now available
from advisor tech leaders like Orion,
Riskalyze, TD Ameritrade, Black
Diamond-SMArtX and Morningstar.
Through partnerships with the mega-ETF manufacturers, such as Blackrock,
advisors can craft diversified portfolios
for “free” by leveraging popular,
researched and vetted investment
strategies and low-cost ETFs, while
unbundling the investment manager
component of a separately managed
account. They do this by working with
the portfolio management, rebalancing
and reporting capabilities of the
underlying software provided by the
above-mentioned tech leaders.
TAMPs first came about by bringing
Protection is good.
This material is not a recommendation to buy, sell, hold or roll over any asset, adopt a financial strategy or use a particular account type. It does not take
into account the specific investment objectives, tax and financial condition or particular needs of any specific person. Clients should work with their
financial professional to discuss their specific situation.
When evaluating the purchase of a variable annuity, your clients should be aware that variable annuities are long-term investment vehicles designed
for retirement purposes and will fluctuate in value; annuities have limitations; and investing involves market risk, including possible loss of principal. All
guarantees and protections are subject to the claims-paying ability of Nationwide Life Insurance Company.