David Littleton is a founding principal of the Vestmark Manager Marketplace (VMM). He formerly served as the chief financial officer of Fortigent, an investment research and technology firm servicing financial advisory practices throughout the United States.
Q1 hedge fund letters, conference, scoops etc, Also read Lear Capital: Financial Products You Should Avoid?
Mr. Littleton worked at Fortigent through a period of sustained growth with multiple capital-raising events, culminating in the sale of Fortigent in 2012 to LPL Investment Holdings, Inc. (NASDAQ: LPLA). He also managed Fortigent’s cutting-edge performance reporting operations for its unified managed account platform.
I interviewed David a couple of weeks ago.
Please describe how VMM works. What was the underlying need in the market to which VMM is responding?
Vestmark Advisory Solutions, Inc. (VAS) is a registered, wholly-owned subsidiary of Vestmark, Inc. VAS was created to provide a set of services that complement Vestmark’s industry-leading software-as-a-service (SaaS) technology. The first service introduced by VAS was the VMM, which is a hub where third-party managers upload their models for use by advisors. This hub addresses a need on the part of many current and prospective SaaS users to have third-party manager content integrated and available with Vestmark’s technology, saving them from having to contract with and manage third-party manager relationships themselves.
VMM also addresses a frustration voiced by third-party managers who otherwise have to log in to multiple Vestmark SaaS installations one-by-one to upload model changes. To solve that problem, VMM offers a single upload to the manager. In addition, models uploaded to VMM can be delivered to platforms outside of Vestmark as well, offering further efficiency gains for managers.
VAS recently added to the VMM offering by launching a model trading service (MTS) that can handle full implementation and rebalancing of the models that third-party managers upload to VMM. This more comprehensive offering addresses the needs of advisors who do not have trading capacity, or who appreciate the benefits of outsourcing that function.
What’s new and important about VMM?
VMM and MTS were built to complement Vestmark’s flagship tech offering. Our approach to the market is different from hub-type services designed as pure profit centers.
For example, we value our relationships with managers as well as advisors and strive to deliver an excellent experience to both. We provide enhanced transparency to managers, including daily reporting of asset levels and accounts utilizing their strategies. We generally allow managers to set their own prices. Our pricing for the service layer that we add is reasonable.
MTS implements models with an eye toward effectuating the manager’s intent. We encourage managers to include notes and guidance when uploading model change. Our trading team has expertise running Vestmark software, so they can take advantage of sophisticated features designed to generate performance that more closely tracks the manager’s composite performance.
What about for model access and implementation?
Managers are growing tired of logging on to numerous platforms to deliver their model. Each platform has its own rules and processes, making the delivery chore a significant burden. Model-rotation issues also cause headaches for managers delivering to multiple platforms and advisors. As a result, with increasing frequency, we are seeing managers refuse to provide a model to an advisor who cannot commit a very large amount of assets to the strategy; it’s just not worth the increased workload on the manager’s operations team. And managers who do agree to provide a model to an advisor without a large asset allocation will often charge a higher fee for that model, in light of the operational burden.
VMM addresses this issue for managers by enabling them to reach multiple end points with a single upload. VMM addresses this issue for advisors by allowing them to access sought-after strategies without having to contract directly with each manager.
On a related note, some strategies require careful implementation so as not to squander precious trading-related alpha, or unintentionally move illiquid markets in a way that harms other investors in the strategy. VAS’s MTS helps address those issues by retaining control of the implementation process. Managers with heightened sensitivity to trading-related issues now have a distribution option that does not require them to “upload and hope” – i.e., send their model to an array of model consumers who may not trade that model in a manner that the manager would consider appropriate.
Read the full article here by Robert Huebscher, Advisor Perspectives
