Chris Volpe is the managing director for Zephyr Financial Solutions, where he manages the strategic direction, client services and product development of this financial services technology solution and the PSN SMA database. Since joining the company, Volpe has focused on delivering an enhanced, user-friendly platform and interface that can be customized to provide investment professionals with a full range of tools to service their client investors while also delivering highly effective experiences to manage retention.
Russ Alan Prince: Separately managed accounts—SMAs—have become increasingly popular recently; why is that, and do you foresee growth continuing?
Chris Volpe: The SMA trend is one that has actually shown rapid growth for quite some time, and we have observed this through Zephyr’s proprietary PSN SMA data. Like other alternative investments, SMAs have historically been offered to institutions or ultra-high-net-worth households due to the high minimums, complexities and fee structures. However, with innovation and technology, it has become easier and less costly to administer SMAs and, therefore can be offered at lower minimums and/or as part of model portfolios.
The availability of SMA data has also expanded, making it easier not only to obtain but to evaluate as well. This combination makes SMAs more affordable and attractive to a wider variety of investors. As a result, we are seeing more and more financial advisors interested in SMAs, and as they become more available, we expect that not only will SMAs grow in popularity, but that growth will only accelerate.
Prince: What benefits do SMAs offer high-net-worth individuals and retail investors instead of mutual funds?
Volpe: Unlike a mutual fund where money is pooled with other investors and managed with a single mandate as directed by the prospectus, SMAs are more flexible and allow for customization based on the investor’s risk tolerance, financial goals and personal values all in one investment.
SMAs also provide direct ownership of shares of stocks or bonds versus interest in a pool of stocks and bonds held within a mutual fund. This direct ownership provides a higher level of transparency, in addition to greater tax efficiencies and advantages.
This is particularly relevant for younger investors who demand more transparency, control and customization in the investments they hold. These desires can all be met through the SMA wrapper. When you combine its tax efficiencies and fractional shares and estimates that are accessible to retail investors, it becomes the ideal investment vehicle for this target age demographic. Younger generations are also aligning their investments with their personal beliefs and passions more than any other demographic, aiding in SMA attractiveness because they’re so granularly customizable.
It is worth noting that SMAs are not as regulated as mutual funds, so advisors need to do more due diligence and research when selecting a manager of an SMA. The ability to compare multiple SMAs against each other, even as part of a model portfolio, is critical to ensuring the best investments for the client/investor.
Prince: Are advisors contributing to SMA growth?
Volpe: Oh, without question! Again, with innovation and technology, SMAs are becoming more commonplace and are being utilized by more and more advisors to differentiate themselves and provide a higher level of service and options for clients and prospects.
Zephyr’s PSN SMA database tracks thousands of SMAs across over 100 universes in equity and fixed-income funds to provide advisors unparalleled views into managers, their strategy, and their performance. And according to our most recent Zephyr PSN SMA poll from Q4 2022, 98% of asset managers expected an increase in investments into their funds. This shows remarkable confidence, but also the trend in SMA adoption by advisors.
Prince: How does Zephyr help advisors identify SMAs in which to invest?
Volpe: There are two primary avenues through which we help advisors with regard to SMAs. First, I mentioned our proprietary PSN SMA data, which has historical data dating back to 1984 and spans over 22,000 SMAs from over 2,900 firms, each with over 2,000 data points that advisors can leverage to narrow down the SMA options based on the investor’s preferences so they can provide a customized investment.
Second, Zephyr is consistently used for proposal generation, bringing in risk metrics to coincide with model portfolios and effectively narrowing in on SMAs that fit the clients’ criteria in minutes. Not only do advisors have the information at their fingertips, but they can then take that information and create client-friendly compliant proposals and manager comparisons to demonstrate the value they bring to the relationship and enhance engagement with their clients and prospects.
Russ Alan Prince is the executive director of Private Wealth magazine and chief content officer for High-Net-Worth Genius. He consults with family offices, the wealthy, fast-tracking entrepreneurs and select professionals.
