Multi-Account Unified Managed Account (UMA) with Harry Bartle

Jack Sharry: Everyone, welcome to WealthTech on Deck. Good to have you on board. Thanks for joining us for our weekly conversation about the future of financial advice. Each week had the opportunity to talk to industry leaders about the confluence of human and digital advice, wherever it might take place. That’s wealth and asset management, retirement insurance and annuities technology. Today, we’re going to change things up a little bit. As we do from time to time, we’re going to speak with my colleague Harry Bartle, here is the EVP and EDS, our enterprise business areas and daily touch with many who are building comprehensive advice platforms. And we’re going to discuss an idea that came from one of our customers that is really caught on so Harry, welcome to WealthTech on Deck, I should say, welcome back to WealthTech on Deck.

Harry Bartle: Yeah, thanks for having me back. It’s been a while.

Jack Sharry: Let’s start with talking about this idea. We variously called it a multi account, text overlay multi account, you talked about direct indexing as a sleeve, why don’t you just talk about what is it and talking a little bit about how it gets started. But when we start with you describing this idea that, frankly, so many of our clients and prospective clients are really latching on to.

Harry Bartle: You know, I think we came to the realization as a firm that we kept saying the term unified, managed household, and we kept on that term for quite some number of years trying to will it into existence, but the truth of the matter is, the U MH just doesn’t really exist today, right? The core and the backbone of our industry is a UMA. And if you think about what a UMA is, and where it came from, you know, I think historically about my career, when I started out in this industry in 1999, I was an internal wholesaler, and I started selling a multi style separate account. And I would go around from financial advisor to a financial advisor, trying to get them to move from 40 Act funds, right, where you can’t control the tax impact of that 40 Act fund, you’re gonna get a bill at the end of the year for that. And I was trying to convince them that separately managed accounts, multi style, separately managed accounts were a better solution, because you could tax loss harvest at the end of every year. And we willed those into existence, we sold those into existence. And those are part of the core of our industry today. But what started happening with separately managed accounts is, you know, you’d have one separately managed account and one account a large cap value, and you had to diversify your portfolio. So you ended up with 10 different accounts, all non-qualified accounts. So the evolution of that was they created the UMA, right, and the UMA was you can hold multiple, separately managed accounts, multiple products, individual equities, fixed income holdings, whatever it was all within the context of one account, so that you didn’t have to do client reporting on 20 different accounts that had 20 different returns. And it was very messy to do it that way. So the UMA was really a savior to our industry. And all of the firms, all the major firms, everybody out there moved to this UMA construct, and that construct still exists today. It is the backbone of our industry. So as we’ve evolved as an industry, and we started to realize that, hey, you know, there’s this wonderful thing called asset location, and that’s the drum that you and I beat every day, right? We try to talk to advisors and firms about how powerful asset location is. And it truly is so incredibly powerful. You know, there’s all these studies around asset locations. And whether it’s Vanguard study or Morningstar study, we see that asset location can provide 60 to 80 basis points on annualized return by just placing your investments in the right account. But how do we do that when the construct and the backbone of our industry is the unified managed account. And so in working with these large companies through the past five years, I’ve been at LifeYield, the way that they’ve done that, and the way that they’ve created multi account investments with the backbone being the UMA is they put proposal systems, and we call it a proposal system, but it’s really an advisor workstation that can act as an overlay and direct traffic down into the You amaze into the brokerage into the IRAs into the Roth, any sort of tax treatment, it can direct traffic down. And as the UMA has become more flexible, and you can kind of construct your own models within those You amaze that has become more powerful today. So all of these firms, major firms are creating these investment proposal systems or advisor workstations that what we’re doing within that workstation is doing the tax piece, right? We’re doing tax loss harvesting, we’re doing asset location, we’re doing single period withdrawal, all within this proposal system, which then acts as whether you want to call it an overlay or whether you want to call it air traffic control, and it directs traffic down into the different accounts registrations, whether that be a qualified or non-qualified account, and it reduces the tax drag or It can also do ad hoc tax loss, harvesting and all those other capabilities that we have. And it directs traffic down into those UMAs.

Jack Sharry: So here what you’re describing what I’ve shared this concept with a number of people across the industry, the reaction is immediate people, as you’ve indicated, the backbone of the industry these days has been continues to be UMA, worrying a lot about direct indexing as a way to do at least for a taxable account to get some tax benefits. Clearly, taxes are at the top everyone’s list of what they need to figure out and do. And as you and I, well known people are catching on to if you’re going to improve outcome, you got to address asset location, that’s the single biggest impact in terms of improving after tax results. Why don’t you describe that for those that are not as familiar just we do a variety of different ways we like field to address tax alpha, when he talks about how that applies to the concept of call it multi account, UMAs, qualified non-qualified account, and then the tax Alpha investment tax alpha that goes along with it. What do you describe that? So you have and what has the most impact? Which is we both those is so location, but what are you talking about that?

Harry Bartle: Yeah, so I mean, asset location, undoubtedly, every study in the world says that that has the most tax impact, right? You know, tax loss harvesting is phenomenal, because it can help an individual has a large amount of assets offset gains at the end of the year, by tax loss harvesting, and also helps transition portfolios, all those there’s a million different benefits to tax loss harvesting. And then you have the advent of direct indexing platforms and products. And I’ll say this, with the most passionate anything I’ll say is you can’t do tax management effectively unless you’re doing it across all of your accounts in concert with each other.

Jack Sharry: Explain that because I think most people figure, we were such a single account, single product single FinTech tool, because the way our industry has been run for the past 40 years, but talk a little bit about that dynamic between the qualified accounts and non-qualified account, that’s really where your tax Alpha comes from, you really need both accounts. Right?

Harry Bartle: Yeah I mean, you know, again, you’re gonna have tax advantaged investment vehicles there, you’re gonna have ones that aren’t very tax efficient, you’re gonna have every single investment product, every single holding that you have, whether that’s a separately managed account, we look at that as one holding, whether that is a direct indexing platform, you know, that is one individual investment vehicle that goes into one sleeve within a UMA or one part of your account. And then you have the dynamic of everybody wants everything hyper personalized. And what is hyper personalized means it means that investor wants to know the state that you’re in the tax rate you’re in, and it wants to know exactly where and what to hold in order to maximize the after-tax return to that household. And if you’re trying to do that individual account at a time, there’s no way to effectively direct traffic down and then quantify that benefit, when you’re doing it within an investment proposal that sits on top of all the accounts. And then using LifeYield for the tax piece, right, there’s going to be somebody else for risk and somebody else for all those other pieces, we’re going to hyper personalize that experience and say, okay, based upon the state that you know, all of your customized tax situation, based upon your time horizon, or all the factors that go in there, we can effectively direct traffic until you were to hold the direct indexing piece of your investment portfolio and your UMA were to hold, you know, the higher taxed high turnover assets, and where to hold the efficient tax assets. And then one of the most important pieces of that is, we’re going to direct that, but then we’re going to quantify the benefit of doing it that way versus the way that you’re currently doing it. You know, the firms that have built these overlays, this investment proposal that sits on top of all the accounts can sit across the table from a customer and say, Listen, you’re at this other firm who doesn’t do asset location and doesn’t have something directing traffic down, I can take your exact same investments, the exact same ones, I can coordinate them better. And I can get you 20, 30, 40, 50, 60 basis points more in value with the exact same investments because I have something a technology on top of it that’s directing traffic down into the different investment vehicles and quantifying why and where you should hold something based upon your hyper personalized tax situation. That is going to be something key to our industry as it moves forward.

Jack Sharry: So what you’re basically describing as asset location, and then some there’s, there’s more to it than that is all the rest of it, but all the different elements of investment tax alpha, but that’s largely oriented around the accumulation at least what you’ve described so far. Talk a little bit if you would about how does that transition when people go into income in retirement? Because that’s we will know and as anyone knows, has ever tried to figure out how to draw retirement paycheck. How does that work? You’ve largely described the accumulation side. What about the accumulation side?

Harry Bartle: You know, it’s funny again, I’ll go back to my history. I remember when I was wholesaling annuities. When I switched from the separately managed account world to the variable annuity world, we used to always say, you know, the average investor has 2.2 advisors and when they go to retirement, it’s going to go down to one you want to be the one and that has been cut is something we’ve always thought in this industry for 30 years now, right? Like when you draw down your portfolio, you’re gonna need to put everything in one spot. So it’d be effectively done. But we really didn’t know why that was the case, right? We knew it needed to be coordinated. We knew there was a lot of complexities around it. And ironically, that’s how life field was started. Right, Jack? You’ve been around since basically the beginning. Paul Samuelson, when he created LifeYield, it was because him and his dad, were talking about how to decumulate. All Paul Sr’s accounts and Paul came up with an algorithm to do it. And that was our first product. But what LifeYield quickly found out is the industry wasn’t ready for how complicated that product was. So we kind of shifted stripped pieces of it out asset location tax, we stripped all those out and provided those to firms to around accumulation vehicles. And now we’re back. And we’re working on, I don’t even know how many projects and everybody’s got different thoughts and ideas around how to de cumulate a portfolio and what’s the order of registration type that you should do accumulate, and when to convert Roth and how it’s very complicated. And it’s very intertwined with planning, right? Because planning is something that every client at every one of these firms has done for years. And they’ve been using this set of Monte Carlo simulations and everything that goes into planning. And now we’re going into decumulation. And all that the planning tools have been phenomenal. They’re, again, one of the backbones of our industry, and they are going to continue to be the backbone of our industry. But where they fall a little bit short, is they’ll tell you how long your money should last. And they’ll tell you, you know, all hypothetical based upon all these Monte Carlo simulations, but then the retiree retires, he says, Okay, great. Now, where do I get my paycheck from this year? And what we’ve decided to do is integrate with planning, take those Monte Carlo simulations so that you’re not contradicting them. You’ve heard me say, you don’t want to use waves on the way to somewhere and Mapquest on the way back. That’s the little metaphor I’ve come up with. And I think it’s true, I think that’s very important. And what we’ve decided to do is take the planning the inputs from planning, look at the portfolio, because we have all those holdings, look at the client’s tax rates looks at any other income, they have all the other details, and show them a year by year analysis of where and when to what’s their RMD. When do you file for Social Security? How much do you convert to a Roth, and then more importantly, your one, okay, now you see your plan, we’re going to take your RMD, where here’s your security, you have an annuitized annuity, here’s that piece, we’re taking this much out of your brokerage account. Now, let’s take that first period and execute and tell them which tax lots to sell out of each individual account. Because when you’re looking across all of the accounts in the household, you can still do things like asset location, tax loss, harvesting, deferral in certain situations, right. There’s all these tax situations that you can do when you’re actually executing the trades across those accounts. So the most important thing is that one advisor has every all of the accounts, everything in that household. It’s analyzed, and it’s hyper personalized, and executable in that first year. So we’ve extended that planning process to say, Okay, now we kind of have an idea of how long your money is going to last. But let’s really get in there hyper personalize it, and show you exactly how to execute a year over year strategy, knowing everything about the household and everything about the tax situation.

Jack Sharry: So Harry, you were having a conversation with someone at one of the major national firms recently. And this is someone who in the past, we’ve talked quite often about the concept of the UMH unified, managed household, we’ve done work with this individual over many years. And he joined a new firm recently. And as we went, he were talking and preparing for a presentation where basically this firm was all set to go with the work that we do. And he was probably the first person that coined the term multi-county. UMA he says, Don’t say UMH. It’s just too complicated. And people are scared off by all that seems to be required to get it done. And all of us when you came back and said, Yeah, we decided to call it a multicast, UMA and we all just like, oh, that sounds easy. So talking about that. I know it’s not as easy as it sounds, but it’s a heck of a lot easier than trying to pull together you imagine which human has more complexity and more challenge. So talk about that. That turning point in terms of where our industry now is at.

Harry Bartle: It’s funny when you bring up that conversation. It’s also one of those like, I can’t believe the way we’ve been phrasing what we do for so many years. But yeah, so I don’t even think he’d mind given a credit, but we won’t name him. We were preparing for our 35th presentation at this company. You know, everybody always liked our conversations thought they were very impactful. And as we were going back and forth on the deck, he said, No, we need to still show the importance of the UMA and I thought about it for a second. I was like, oh my gosh, I can’t believe we keep saying UMH And he literally said you need to stop saying UMH because everything in our industry is a UMA right now. And I’m trying to get the UMA to continue to be the backbone of this organization because that’s the only option out there nobody has a UMH. And so we went in and we you know, showed it very differently we show Would it through, you know, the investment proposal system can really be the householding implementation vehicle with the UMA as the backbone. And I just remember the reaction in the room when we put up, you know, the series of slides. And we talked through and in our demo how our solution makes the implementation of multi UMA possible. It was like light bulbs went off. They were like, Oh, we finally get what you do. You’re not at UMH, you’ve been saying UMH. And you’ve not been showing us a UMH. And there’s been this disconnect. And I think light bulbs went off with us as well, because we just kind of always thought everybody understood, but they didn’t. We presented it as no, you can make your You amaze, household or multi account. And you can direct traffic down into the different UMAs. And everybody’s light bulbs went off. And I remember one of the senior people goes, I actually understand what you do now. And that’s incredibly valuable. And I remember the other thing was like, good thing we made our proposal system multi account. Yeah, and actually, yeah, we had something to do with that to our 35 meetings, I believe.

Jack Sharry: But so you and our client coined the term multi-count, you have a it sounds a lot easier. People obviously got it. They understood what you’re talking about how easy is it or how hard is it to implement it sounds like it might be easier than that dreaded term.

Harry Bartle: I mean, it’s certainly a lot easier than unplugging a UMA and plugging a new back office, you have UMH capability. And that’s, you know, anybody that’s ever went from a single account system to a UMA from traditional old brokerage accounts, etc. knows how painful that process is. It’s very painful, very expensive. It’s years of work. This is much less painful, right? Like we can take the UMA, which is the backbone and the plumbing of our industry, and put something on top of it, which creates a household and capability multi account implementation capability. Now, that being said, even when we’re working and consulting with firms on the investment proposal that sits on top of that, you can get into the weeds. And we always like to say let’s keep things very easy to begin with, let’s make the implementation of this. If you already have multi account capability within your investment proposal, let’s plug asset location in let’s do it at a category level to start, right because we can work as high level or as granular and then get into tax lots and trading at a later point in time. Because what we find is that as you’re implementing multiple accounts together, there’s an education process that happens across your firm, you have to educate advisors how and how valuable it is, you have to educate everybody within the firm and sell it within the firm. So let’s do it at a very high level, let’s take that investment proposal, do a six month project, get it live, and start the first version of it. And we’ll get more granular as we go. So the answer to your question is, it’s much easier than replacing a UMA with a UMH. But you know, there’s still complexities to it just like anything with anything else in our industry, there’s a lot of old, you know, single account, rebalance are still out there. And you know, we sit on top of those as well. So there’s a lot that we can make it much simpler than it sounds.

Jack Sharry: For our audience, just to explain what he’s referring to his revert to what LifeYield does is an overlay, it’s something we’re using that term more and more people seem to understand it, which we don’t do planning, but we make planning better. We don’t do proposals necessarily, we could but don’t necessarily do proposals, but we’ll make the proposal better. We can take a single account, rebalance or and make it better by making it multi account. So we can whatever the different elements are, and really what areas you’re describing. And please agree or disagree. But basically start in one spot, get it going, get it working, help the adviser make the case for why they should consolidate assets with them, and then go to the next thing and the next thing and the next thing you may want to comment. I think I got that right. But tell us about that.

Harry Bartle: Yeah, so this was not by design. And I think the way that we did this right is you know what life field originally built with our first product Paul and Mark and Michael and team built was very different than what we have today. Our API’s now are very flexible and work in a couple of different capacities. Right? Once we got in here into the big firms and signed deals, all of a sudden we realized, yeah, you know what, you have single account rebalances all over the place you have, you know, a couple LMS systems, you have all these old legacy software’s which aren’t going anywhere. So we needed to be flexible. So take rebalancing, for instance, right? We are a full household rebalancing engine, we can rebalance a group of accounts and we’re a full rebalancing engine, but we’re not going to replace the old ones anytime soon, right? They’re still out there. They’re still in there. The You amaze all have their own individual bouncers. So just like we talked about with the investment proposal, we can sit on top of those single account rebalances and direct traffic into them. So we act as that overlay or air traffic controller in multiple capacities. And we’ve had to develop that through time right knowing all the different package products, separately managed accounts and products we can control every investment in there, we’ve figured all those things out and figured out how to work with the old software’s that are in place. And we’ve been around since what 2008. So we’re going on 15 years now, I don’t want to say we’ve mastered all working alongside planning working alongside legacy software. But we certainly aren’t trying to replace any of it. We’re trying to work with what the industry has in place, and enhance it to have more multi account implementation capabilities.

Jack Sharry: So here, this has really been fascinating conversation, we have these conversations often but fun to do this on the podcast. For our audience, what are three key takeaways you’d like to leave with our audience that might be useful for them?

Harry Bartle: Yeah. So one, obviously, is that, you know, you amaze are the backbone of the industry, right? Everybody’s talking about multi account management and multi account implementation householding. One key takeaway is for people to understand that you don’t need to replace that plumbing, you don’t need to replace the UMA with something, you can create householding multi account implementation capabilities, while still having the backbone of your firm be that you have a platform 100% That’s one, two, something I’ve known for quite some time now that I’m very passionate about is, you know, planning is very important to our industry. Everybody has their planning software of choice, they all have their attributes and things that that make them not work for certain clients, I believe you do not want to have a separate planning system for retirement income than you do for accumulation. Right, you can take the accumulation piece and continue to use some of those pieces that were done in accumulation to show a retirement income strategy. I think using ways to get somewhere and Mapquest to get back is a challenge that clients are going to struggle with. Third would be our industry has lots of old legacy software, and I’ve been in financial services software now for 15 years, it is really hard to replace software in our industry, especially the plumbing, rebalances, etc., you know, working with LifeYield, and some of the risk companies and a lot of the different companies out there, you can enhance those software’s without replacing them and continue to work without a huge multi-million dollar, you know, 20 $30 million project, you can continue to implement multiple accounts together, rebalance, you know, performance reporting, all of those things, you can do those without replacing them and enhance those capabilities. So I would say those are to me three big takeaways that we can help with, I’m sure.

Jack Sharry: So Harry, it’s been a pleasure as always to catch up with you. And it’s not like we don’t do it every day. But it’s been fun to catch up with this format. As we do each week on our podcast. Would you tell us something interesting or unique you do outside of work for that people may not know about you and would find interesting or surprising?

Harry Bartle: Yeah, sure. So my wife Sam and my two boys Myles and Harry, I pretty much work and hang out with them. I coach both my son’s hockey teams my son Harry Boston Junior Bruins 2011 Future United champs I think I spend about 50% of my off-work hours working with those two kids in their hockey teams. So I would say that’s lamely the most interesting thing about me and I have an electric scooter that I go to bring into work every day as a 46 year old man.

Jack Sharry: Little embarrassing, but it’s so very this has been a lot of fun, really enjoyed our conversation. As always, for our audience. If you’ve enjoyed our podcasts, please review, subscribe, and share what we’re doing here at WealthTech on Deck. We’re available wherever you get your podcasts. Thanks again, Harry.

Harry Bartle: It’s been a lot of fun. Thanks, Jack.