Introducing a custodial platform that you probably never knew about.
Last month, writing about the Schwab acquisition of TD Ameritrade, I profiled a number of alternative custodial platforms—all of them looking for new business from people who are exploring the alternatives to simply going ahead with the status quo. I profiled Pershing and TradePMR, which are the most selective in their recruiting, and Shareholders Service Group, which operates on a strict fiduciary model is highly-consonant with fiduciary advisors. There was E*TRADE Advisor Services, which is completely rewriting its platform interface with advisors for a big upgrade in the summer, and the hot newcomer, Altruist, which offers a lot of tech and online service features that advisors have been asking for for decades.
I did not list—because I did not know about—the independent advisor platform offered by SEI, Inc. the advisor profession’s leading TAMP provider, in Oaks, PA. This was not a small undertaking; SEI’s custody platform is used by 11 of the top 20 U.S. banks to support their trust and asset management operations. The platform also runs SEI’s many separate account offerings, which are used by 7,400 advisors who have $70 billion at the firm.
“In all, we’ve invested well over $1 billion in rewriting our entire company platform onto new technical architecture,” says SEI vice president Wayne Withrow. “Late last year, we completed the migration of our entire TAMP business onto that new custody technology,”
As Withrow tells it, toward the end of the migration process, the senior management team looked at each other and wondered if there was any good reason why they couldn’t offer the same platform, with the same capabilities, to independent advisory firms as their custody platform. The capabilities make SEI a unique (if still niche) player in the custody space; instead of a trading and asset management workspace, SEI provides something that the firm defines as a total wealth management platform—a set of integrated business solutions that also has trading and custody features.
What’s the difference? If you log onto the system, you discover features that are included in outside client portal systems, like a variety of performance measurement tools, total household allocations to different asset classes, and a variety of charts and graphs. You find built-in rebalancing and tax-loss harvesting features across households that can be automated (using time periods or tolerances individually selected for each asset class), similar to the independent rebalancing programs. (The system provides information and takes action at the individual tax lot level.)
Meanwhile, onboarding can be handled via e-signature. “We can onboard an advisor shop within 24 hours,” says Withrow. Of course, the ACATS transfer takes longer, and advisors on the platform will have to wait until the end of the quarter for the firm to migrate from e-signing PDFs to a completely online account opening process. It will be interesting to see if this is the mystical end-to-end online account opening capability that the profession has been asking for. Withrow says there are a number of error-checking features in place, to reduce NIGO returns.
Why build what advisors can easily purchase on the outside? “In order to run a successful advice business,” says Erich Holland, SEI’s co-managing director of new business sales, “we think there are must-haves that shouldn’t be up for debate. These should all be standard, rather than add-ons.”
To answer some obvious questions: advisors who use the independent SEI platform are free to use any investments they wish; they are not restricted to or required to use SEI’s separate accounts. (But those separate accounts are available.) Instead of transaction fees plus an expensive cash option, SEI assesses platform fees, based on the type of business you’re doing—and the highest fees, Withrow says, are still in single digit basis points. “It doesn’t vary widely based on what people want to do,” he says. (That platform fee covers all trading costs.
So are there any downsides to this sparkling new custodial platform? One possible obstacle is that advisory firms will have to use model portfolios if they want to go on the SEI platform; the technology is geared around models. Firms can have an unlimited number of these models, but for advisors who create bespoke portfolios for every client, they will have to either change their model or select another custodial option.
There are no size limitations for coming on the platform, and each advisory firm has a dedicated service rep.
“The thing advisors are asking themselves,” says Withrow, “is: what do I need on the platform to support my business? I don’t want advisors to have to go out and say, well, how am I going to collect my fees? How am I going to rebalance my accounts? I have to send out statements; I have to do performance measurement. What do I use for that?
“We do all of that; you just go out and service your clients,” Withrow adds. “We’re offering an unbundling of the foundational scale of our TAMP and banking businesses. For some advisory firms, that could be a pretty compelling proposition.”
What is the opinion of advisors who are using SEI’s new upgraded platform? Scott Everhart, of Everhart Advisors in Dublin, OH, initially had no interest in adding a second custodial relationship. The firm has about $650 million on its wealth management side, and manages 320 corporate retirement plans in the ERISA world. (In 2018, the firm was named by Plan Sponsor magazine as the Advisory Team of the Year in the mega team category.)
Everhart became aware of SEI when it was one of few companies who could handle an isolated case involving a client who had invested in a captive insurance company. Somehow, during the conversation, a member of Everhart’s staff mentioned his firm’s frustration with software integration with their current (not to be named) custodian.
“The software worked some of the time and not others,” says Everhart. “All we needed was for it to rebalance accounts with tax-efficiency for our taxable accounts. We discovered that SEI automates all of that. Their software has been very user-friendly,” he adds.
The firm started moving assets over to SEI on an experimental basis, and liked the quality of the service so much that today, most new assets are going to SEI. Everhart describes the difference as a good business partnership (SEI) vs. a big-company vendor relationship (the other custodian). “When something gets off-track—and they always do, because nobody is perfect,” says Everhart, “I have a hard time moving up the chain at [my other custodian] to get to a decision-maker. At SEI,” he adds, “we can immediately get to people who can solve the problem.”
Meanwhile, Everhart says that his MoneyGuidePro software has a good integration with the SEI platform. “We are a planning-first firm, and they are doing everything we need to have done on the asset management side,” he says. “We were absolutely not looking for another custodian,” he adds, “but the crack was the software challenge, so that got them in the door—and they have exceeded expectations ever since.”
Another SEI user, Pollock Investment Advisors, falls somewhere in the middle of the pack in terms of size (150 clients, $250 million in assets). Its initial relationship with SEI was relatively small. “We started our firm in 2006,” says company co-founder (with his brother Jim) Rob Pollock. “Jim worked at a bank trust department, managing a small cap fund, and I was on the investment and equity committee of a fast-growing boutique firm,” he adds. “We decided that we wanted to be very selective with who we would take on as clients. There’s so much work that goes into onboarding a client and building a relationship, that we wanted to weed out problems down the road ahead of time.”
The young firm placed $20 million with SEI’s TAMP system. “That solved our smaller client and account problem,” says Pollock. “We could take on more business and not be burdened by it.”
Pollock was unusually experienced in custodial platforms, having custodied, in his career, with Paine Webber, First Michigan and Pershing. So it caught his attention when the level of service with smaller accounts at SEI exceeded the service he was getting with his current (not to be named) custodian. “Long before they opened up their new platform, we noticed that every account and every client we worked with at SEI, we were dealing with the same people whenever there was a problem,” Pollock says. “Their service was spectacular, and their continuity of personnel is off the charts. We never have to revisit a problem every time we call. Someone owns it, and they have a tracking system that is fantastic.”
Pollock asked SEI if it would be possible to transfer all of the company’s assets over, but not in TAMP accounts. “I told them, you guys are a nice TAMP, but the platform is the golden egg,” he says. “Your culture is what you should be selling, not your TAMP.”
SEI eventually used Pollock’s firm as a test case to grow the custodial platform, and with the rewrite and built-in capabilities, Pollock is now considering dropping Advent Axys and working directly with SEI. “All the things we used to do in Axys, we can now go right to the portal and see what we need to see,” he says. “Axys costs us $20,000 a year,” adds Pollock. “That’s not a small expense for a $2 million (revenues) firm.”
Meanwhile, the company wanted to stop managing individual muni bonds and corporates. “We discovered that SEI has everything from independent managers to ladders, barbell strategies, whatever you need for one client or multiple clients,” says Pollock.
There is no requirement or pressure to move client assets from the independent platform into SEI’s separate accounts, but Pollock says that he does use one of SEI’s managed volatility funds in client portfolios.
What, exactly, is the difference between the old platform and the new one? “The legacy system was decent to look up holdings,” says Pollock. “It was decent to see activity, but there was very little online ability to effect transactions for ACHs and any other request. Everything was pretty much manual. Almost everything we do now is right online,” Pollock continues. “I will send an email to my ops manager and say, Bob Veres needs $20,000 ACHed. Boom, she goes online, fully automated.”
Is there anything missing? Pollock says that SEI is still working on accommodating private real estate deals (which the firm offers), and individual 401(k) client accounts are currently not included in the household rebalancing system. “I would say the only weak link of the platform would be the aggregation,” Pollock says. “You can do it, but it’s still not as seamless as it needs to be. They’re working on that as well.”
Integrations? Pollock says the link to the firm’s Advizr planning software went from good to excellent, and he can make customized requests that suggest that any future software the firm brings in will work as well.
As an example of SEI’s responsiveness, Pollock points to the reporting function that can be used internally or in the client portal. “We have always done a manual report for every client, with beginning value, contributions, withdrawals, internal withdrawals from IRAs to a trust or taxable account, fees, everything,” says Pollock. “It would take us a month of staff time to get that completed.”
One day, the Pollock brothers showed SEI representatives what they were doing, and made a request. “We said, is there any way this report could be built into the platform?” says Pollock. “If we had that data in real time instead of once a year, we could from a marketing and sales and growth perspective where the money was coming from, how much is net new, what we brought in gross and net.”
Working with Pollock’s ops manager and a younger advisor, SEI managed to program the report onto the platform. “It took them about a month,” says Pollock. “And it saves us a month’s worth of work.”
It will be interesting to hear from other advisors using SEI, but the ones I’ve encountered seem to be on the cusp of being raving fans. “SEI cares more,” says Pollock. “We tell our clients that we care more, which I know is nebulous and intangible,” he adds. “But we know what it looks like, because we do, and they do.”