SEI Acquires LifeYield with Mark Hoffman and Paul Samuelson

Jack Sharry: Hello everyone. Thank you for joining us on what might be the most special WealthTech on deck we’ve done yet for today’s podcast, I’m joined by my colleagues and friends, two of the co founders of LifeYield Please welcome Mark Hoffman, LifeYield, CEO and Paul Samuelson. LifeYield’s Chief Investment Officer, Paul developed the content and methodology of LifeYield, multi-account, overlay capabilities. Mark has led the company, and with our team, built LifeYield Software. Today, we’re coming together to celebrate, as was just announced, SEI has acquired LifeYield to create SEI LifeYield, together with SEI, LifeYield is building the industry’s most comprehensive, unified managed household experience to help advisors, wealth managers, asset managers, RIAS and broker dealers grow and investors to thrive. Today, we’re going to provide some perspective on what it might mean for our clients in the industry. Mark and Paul, congratulations and welcome back to WealthTech on Deck. So good to be having this conversation.

Paul Samuelson: Great to be here. It’s very exciting. Glad to be here, Jack.

Jack Sharry: Thank you so Mark, why don’t we kick it off with you? From where you sit, what does the acquisition of LifeYield by SEI mean for our company and as probably as important as for the industry? That’s a good question.

Mark Hoffman: Jack for LifeYield it means unequivocal validation of the premise that had my partners and I found LifeYield to begin with, and that premise was that only in managing an investor’s coordinated accounts together, from accumulation to draw down, can one provide the best outcome for those investors in terms of making them have or experience the largest portfolio balance, as well as income for the industry the combination of two world class firms in terms of investment services, technology and algorithms, highlights how many investor clients can best be served.

Jack Sharry: So Mark, basically what you’re saying is in I know this well, of course, LifeYield and SEI are coming together with complimentary skills to really improve the outcomes of investors, advisors and the firms we serve. So that’s really the sort of the bottom line. So to switch over to you, Paul, if you could share your thoughts on umh in particular, unified managed household. That’s a buzzword that’s been around for 25 years or more. Unified managed household. Could you describe what a UMH is for our audience?

Paul Samuelson: Yes, a UMH is looking at all the household’s accounts, as well as other sources of non-investment income, because households typically have one tax return which is focused on a particular calendar year, there needs to be much greater sophistication in understanding the sources of tax liabilities, both non investment tax liabilities, as well as the tax liabilities which are created by their various accounts realizing gains and taking in taxable income in the form of interest and dividends.

Jack Sharry: So if I made for our audience who is still hearing the term UMH, but maybe not quite understanding the full impact of it, because it’s somewhat complex, I’ll just read from our website. It’s the evolution from single account management to multi-account management that aims to improve financial outcomes by coordinating all the accounts in a household portfolio to minimize tax strengths. So we’ll be talking some more about that. What’s the impact of the UMH Paul? Why is this important? Why is everyone chasing it?

Paul Samuelson: The reason why people are chasing it is that there’s a very large benefit to households, and it’s both understanding and anticipating their sources of non investment tax liabilities, you know, such as from their W2 income early in their careers and later in their careers from sources of retirement income such as Social Security, annuities and pensions. So it’s it’s understanding that part of it as well as understanding the impacts of different trading activities on the realized gains and investment income.

Jack Sharry: Gotcha. And one of the things that probably goes without saying, but needs to be said, because people sometimes forget when you’re managing all the accounts. And a household, often those those accounts, those holdings, are in a variety of places. And because of the ability for LifeYield and and soon, with SEI to do this, you can actually quantify the benefit of consolidation. So for advisors, in particular, a real attractive aspect of this, of what we’re doing at LifeYield, and will soon be doing well, actually are now doing, technically, are now doing with SEI it gives cause for that consolidation quantifies the benefit chosen dollars and cents and basis points, how much more money you have. So Mark, if you would talk a little bit about the deal itself.: Jack, I think there are several reasons. I guess at the 30,000 foot level, I’d say that SEI has got a wonderful reputation and culture and philosophically, very similar to LifeYield in that very family oriented but hard working company with smart people that really want to do the best to their clients. LifeYield is the same way, much smaller, of course. So the combination, in that regard, the cultural combination, worked very well. So all of our team, as you know, at LifeYield, is coming over and will be working and become SEI and all of our business lines will be supported. So all our clients who we’ve worked with today, we built a list of tremendous named clients over the years, they’ll all be have, not only have continued support, but we’ll have a lot more opportunities. And then finally, SEI is known for a terrific service model and providing very good service. And we LifeYield once we really proved our capabilities in the industry over the last 16 years, we really want to scale this and make it a utility for the industry, because it really does benefit, as Paul saying, and I had mentioned the end investor in the best way at coordinating their accounts together and getting the best outcomes, and combining our technology and our algorithms with SEI service model and large footprint of being able to service many clients, just allow the capabilities to scale in the industry.

Jack Sharry: So one of the things I amplify what you were saying, Mark that I think is important for our audience to understand is that LifeYield, in large part, handles the front end and the middle where, if you will. In other words, we often attach to planning tools, proposal tools. We show the value of combining accounts, how much more money, how much more in terms of tax advantages can be enjoyed, dollars and cents as part of the part of the offering, and then also how to play that through to suggest trades. And really what the combination with SEI provides for is a front to back, if you will. SEI is renowned for its operational efficiency, its technology, certainly its investment products as well. But essentially, by bringing all that together, they have real strength in whether it’s in mutual funds, it’s SMA, UMA, they’re building out a robust alternatives offering. So the combination of what they do and what LifeYield does really is soup to nuts, if you will, front to back in terms of being able to offer a variety of services, particularly around the implementation of the portfolio, because that’s one thing to suggest how the portfolio might be laid out, from an asset allocation standpoint, an asset location standpoint, but then putting it all together, making the suggestion in terms of how to optimize the results, to improve outcome, because that’s really what the software is designed to do, is make suggestions that could improve the results. All that’s going to be critically important. So along those lines, Mark maybe just talk a little bit further about what this might mean for our customers. We have many customers in place, talk maybe a little bit about their status and what that looks like going forward.

Mark Hoffman: Well, most of our customers, all of our customers that we served as a technology firm, we’re API most part, and that meant our clients would need to implement our APIs to do what you just suggested. So they hooked our APIs to their planning or their investment proposal systems, and we’re a capability that goes from being able to communicate with the client to hooking to the trading system so that you can implement what you’ve communicated to the client and they want to their portfolio with SEI we can actually provide a much broader level of service so that it’s easier for our clients, many of which who don’t have the technology budgets or the personnel to be able to, you know, do long term projects now it can be offered as a service. SEI has been a client of ours for about six years, and we deeply integrated in with them. We’ve had a terrific relationship even before the acquisition, and this is just a culmination of us being able to take this out to you know, the whole industry, really. Multiple channels and provide the level of service and support that will allow many, many more investors to get the good outcomes.

Jack Sharry: So Paul, at the heart of all this is the idea of that LifeYield optimizes around taxes, how to minimize taxes, how to reduce taxes, the investor advisor and firm paying unnecessary taxes just because of the efficiencies that we bring to bear all algorithms that you’ve worked on and developed over years. So taxes are at the heart of this. So could you, for the uninitiated, what’s involved with tax alpha? We talk about generating tax alpha. There’s many different aspects. Maybe you could take our audience through what those many aspects are, and some of the ways that LifeYield addresses those?

Paul Samuelson: Yes, the general notion is that clients have some taxable accounts which are sometimes referred to as brokerage accounts, and then they have some tax deferred accounts which are often referred to as IRAs. And if they had the easiest circumstance possible, what you would try to do is to hide the investments which are highly taxed in the IRAs and then in the taxable accounts just maintain investments that have low taxes. One of the investments that has very low taxes is cash or any short term fixed income, because the interest rates very low. But that’s the easiest case, and then sometimes with the brokerage accounts. It turns out that the lowest tax assets are actually the in state municipal bonds, because one of the poorly understood facts is how much people pay in state income taxes in states where many of the investments firms clients reside, so New York, California, Massachusetts, they’re very high taxes on investment income and any kind of realized gains. So that’s sort of the simplest story. But what happens is that life becomes complicated quickly, because clients have stock positions, in particular, often from company stock or from stock that was given to them many years ago, where there’s essentially almost no cost basis, so that the entire position is unrealized gains, and those positions cannot be casually sold without incurring significant gains, but they do become candidates for the wealthier clients to create gifts. So when people think about selecting tax lots, they usually think about tax harvesting, and they usually think about looking at each individual account with investment software. It can look across accounts, and it can both harvest losses where there are any, but the same software can also be used to harvest gains, which are candidates for donations to either in the old days, family foundations, but the new, very convenient way of making charitable contributions is using donor advised funds.

Jack Sharry: For our audience that may not be as familiar with some of the things Paul’s describing, I’ll give some headlines. So you first described asset location, putting the less efficient, tax efficient assets in the IRA and the more efficient assets, for a tax standpoint, in the taxable account. That’s some just a general observation, it’s much more involved in that. You mentioned tax loss harvesting, which most are familiar with, and that plays an important role in both cases. We’re talking about multi account. This is where the complexity comes in. This is all part of what Paul’s algorithms, where he and Mark and Martin Cowley had a product have worked on for a long time. How do we get the right stuff in the right place, if you will, how to tax loss harvest across multiple accounts, also how to transition. So when you’re bringing assets in, you’re doing so on a tax advantage level. And then there’s rebalancing. As things markets change, as circumstances change, rebalancing is important to get that. Right again with taxes in mind, and then further down the road, when it comes time for income, how to optimize the income stream so that it again minimizes taxes and maximizes outcome, and then also part of the capabilities of life field. And now life SEI LifeYield will be Social Security optimization. So putting all that together is what we define or call as tax Alpha Mark I want to go back a little bit and talk about product and the capabilities that are coming together. Maybe if you could talk a little bit about what the offering from SEI LifeYield would look like, if you give a little more of a flavor on in terms of what we have now by API, kind of where we’re going from a product and capability standpoint.

Mark Hoffman: Well, as I said, Jack the API capabilities are not going to go away. We’re still going to be offering those to our clients that are using them and other ones that want to use them. Then that means that those firms, they want to dictate the full user experience and connect their systems together, and we are very good at that, very much support that. That will continue. But the newer offerings are going to be more service related, where more things can be done for our clients to make things easier, because combining an investor’s multiple accounts that may have had different objectives, combining them together to get the most value in terms of reducing tax drag, as Paul was talking about, which is complex, taxes are different between qualified accounts and and taxable accounts, and then even different between the assets that you may place in those accounts. So coordinating all those things together to fit a client’s risk profile, and then to connect to a firm’s perhaps unique trading systems, requires a level of service that can be very beneficial to the client firm and to their end client. And those are the things that you’ll see. SEI and LifeYield offer together, just more of a service offering where more can be done for those firms.

Jack Sharry: So Mark to continue, we talked about product and capability, all that’s presently available, continue, lots of new stuff on the way. Folks will be hearing more about that over time. It’s pretty exciting. Some of the direction that we’re pursuing with our colleagues at SEI, let’s talk a little bit about distribution and operational capabilities. Obviously quite different, but maybe start with the distribution side. SEI plays an important role with banks, broker dealers, advisors, asset managers. They’ve got a history of product innovation, as we know and of course, they’re stock and traded. They’ve been a long time really efficient operator in terms of the back office or the operational efficiency, so terms of how this all comes together. With LifeYield, talk a little bit about that. From a distribution standpoint, we’ve talked a good bit about some of the markets that we’ll pursue, and then secondarily, we’ll talk some more about the operational side. But where do you see things going from distribution? And I’ll obviously join in with this discussion, since I spent a fair amount of time on that topic as well.

Mark Hoffman: Well, SEI is, as you just said, is very well known to have distribution in multiple channels, the banking channel, the RIA channel, the IBD channel, and does a very good job with those channels. They also have a tremendous business with asset managers and model portfolios. And what LifeYield brings are algorithms that Paul invented have the ability to take multiple accounts and provide the best asset location for those assets to get the highest after tax returns, we can do tax loss harvesting over multiple accounts, not the single account like everyone else does, but multiple accounts. Tax transitions, multiple accounts, again, not just a single account, rebalancing. And then, of course, the very most difficult use cases, is income providing withdrawals over multiple accounts, and in particular in drawdown, when you have to worry about required minimum distributions, you’re trying to stay in line with the portfolio’s target and keep the client’s risk profile the same without having to rebalance after with a couple of days after the withdrawal sitting on top of multiple programs, multiple asset types. Those are all the things that LifeYield has done well, combining that with SEI’s ability to service their different channels, each one of their channels may be a little different, but they need those same capabilities that I just described, and their power is being able to service the banking channel, which is going to be different than what an raa may have. As far as needs, onboarding clients is different, and offering capabilities to communicate with your clients is going to be different in those different channels, all those things they do very well, but at the end of the day, they still need to be able to implement what’s going to give the client the best outcome, which is what LifeYield’s algorithms provide. And I just, we’re just very excited about the combination of the service on top of these battle tested algorithms that have been working well for years.

Jack Sharry: And if I may add a little bit on the distribution front mark, and I have had numerous. Conversations with with our existing clients, with clients that we’ve been working with for a long time, finding ways that we can work together, not only with wealth managers and RIAs but also asset managers and and so on. We haven’t done as much on the banking side, although that’s looking very promising. SEI is prominent in the bank world, so there’s a real hunger, thirst, desire to have multi account management. We see that wherever we go, we’re hearing that a lot, and clearly from our conversations to date, there’s a real excitement and interest in how do you pull all the stuff together to manage assets at the household level? I was just talking with a friend of mine who is a longtime observer of our industry, and we’re just talking about this broadly before the announcement. And by this, what do you think about the importance of this UMH thing we keep hearing about it. It is common.It’s a no brainer. It’s what people want. And so really, what’s happening with the LifeYield SEI combination is that really able to bring it not only on the product side, the distribution side, but then from an operational efficiency I don’t really, don’t know of any firm in our industry that has as strong a track record around operational efficiency as SEI so to a large degree, I think the opportunity between our firms is to be really the back office for UMH, for the industry. That’s potentially where this could go, and certainly something we want to continue on. If you want to add anything to that Mark.

Mark Hoffman: I think you’re spot on Jack, and I think the possibilities are are very real and very broad and very excited about them.

Jack Sharry: So anything we’ve left out, Mark, and anything we left out, Paul, want to kick it off with you. I think we anything we missed, anything you want to make sure as a takeaway as we look to bring our podcast to a close.

Paul Samuelson: Well, I’ll say that by historical accident, I’ve managed accounts for my wife and me, for our children, who are now in their late 30s, for my parents and also my in laws. I would not recommend do it yourself for anyone with significant assets and sources of retirement income. It’s been useful for me because I’ve been able to identify ways to simplify the process and identify repetitive patterns of trading transfers between account types. But in order to have success for any households that have resembled half the complexity of my extended household, you need an investment software, and you need the whole support of onboarding accounts and connecting accounts to just be in the game at all, and obviously you increase the accuracy the results tremendously. I can look back at the mistakes I’ve made, and if I’d had the right advisor equipped with what SEI LifeYield is going to be equipped with, it just would have been much better.

Jack Sharry: I hear you. I hear you. I echo that. Mark, anything? Any final thoughts on I’d like to leave with our audience about what’s just transpired and what might be coming our way?

Mark Hoffman: Yeah, I would like to give a shout out to all LifeYield employees and partners and everyone and say thank you. They’ve done a tremendous amount of work over the years and done tremendous good work. And I also want to shout out to the folks that we’ve worked with at SEI first as a customer, but then our teams are combined together to work as a as a team, and very excited really enjoy all those new relationships and ones we’ve had for quite a while. I think the combination is going to bring good things. And I just want to thank everybody for all their support, all their hard work, all their great innovation and exciting times for for both of our firms.

Jack Sharry: I agree that’s been great to work with folks at SEI. In fact, we’re going to have a number of them on our podcast coming up over the next few weeks, in terms of their perspective, from a distribution standpoint, operational standpoint, product standpoint. So we’ll have more detail on what this all means for not only for LifeYield and for SEI, but probably more importantly, in fact, I think very importantly for the industry, I think it’s really going to be a game changing capability for our industry as consumers are looking to maximize what they own and getting the most out of it and avoid paying unnecessary taxes. So Mark and Paul, thanks so much. Really appreciate this conversation, and excited for all of us, excited for our LifeYield teammates, for our new friends at SEI this is all great stuff. If you’ve enjoyed our podcast, reaching out to our listeners here, please check us out on our new website, wealthtechondeck.com, where you can get more comment and perspective on what’s going on. So check that out if you would. And to Mark and Paul, thanks so much for this conversation. It’s been a real pleasure. Really enjoyed it.

Mark Hoffman: Thank you, Jack.