We re-engineer wealth management workflows. It's not always the right fit for everyone.
We don’t just improve a firm’s existing workflow. We re-engineer it. The results are amazing (if we do say so ourselves). But process re-engineering is not a small thing, and it’s usually not worth doing for firms just looking for incremental improvements. Which is why we will sometimes refer prospects to other vendors who, superficially, would seem to be our competitors.¹ We’ve previously written about how we can help firms. In this post, we wanted to mix things up a bit and write about firms where we are not the right answer.
When we started Smartleaf, our goal was more than to just make a better rebalancing tool. It was to automate customization and tax management —to make these tasks effortless, so that every portfolio could be managed as if they were all ultra-high net worth portfolios.
Achieving this level of scale can’t be done by simply automating each step of existing manual workflows. As we mentioned earlier, to accomplish what we’ve done we had to reimagine and re-engineer the entire portfolio management workflow.
The good news is that the payoff is impressive. Relative to existing workflows, you can simultaneously cut costs, generate more tax alpha, offer more customization AND reduce dispersion — on average, our clients reduce both dispersion and taxes by about 60%.
But reimagined and re-engineered workflows are not for everyone. We’ve found that there are three types of firms where we’re not the right fit:
Change is costly, not necessarily in terms of dollar outlays, but in terms of management resources. There’s a maxim of “if it ain’t broke, don’t fix it.” We tell prospects that if their existing rebalancing system and workflow is working for them, even if somewhat clumsily, they’re probably better off implementing incremental improvements. For these firms, Smartleaf is likely to be overkill.
For many advisors and investors, talking about which securities to buy or sell is what wealth management means. Client meetings focus on evaluating past decisions and making new ones. And the portfolio’s performance is the ultimate measure of the advisor’s success.
Smartleaf isn’t a good fit for these types of firms. We give advisors unprecedented power to deliver customized, tax-optimized solutions to all clients, but this type of scale precludes advisors spending a lot of time worrying about individual trades.
Smartleaf’s system doesn’t use sleeves (AKA subaccounts or partitions). We don't think it's possible to use sleeves AND deliver high levels of tax management and customization at scale. We chose the latter. (We’ve made the case against sleeves elsewhere.)
But some firms need sleeves, either because 1) they want to use third-party subadvisors to trade different portions of a client’s accounts, or 2) they want to provide clients with separate performance reports for each manager or model in a portfolio.
In principle, Smartleaf could be used in conjunction with a sleeve-based system, providing customization and tax overlay for each sleeve. In practice, we don’t see this. The “sleeve/non-sleeve” divide seems to be fairly fundamental. Product-oriented firms choose sleeves. Firms that aren’t product-focused choose non-sleeved "holistic" approaches.
We don’t like turning prospects away, but we also know we can’t be all things to all people. We’re pretty confident the industry is moving in our direction — away from product-oriented value propositions towards value propositions centered on being the overall guardian of the client’s financial well being. Having advisors spend large portions of their day managing portfolios will become economically unviable (as one client put it “in the long run we won’t be compensated to do anything a robo can do just as well”). At the same time, high levels of customization, tax-optimization and direct indexing are going to become “table stakes.” These are trends that work in our favor. Which means that, going forward, we expect we’ll be turning fewer prospects away. And that, we think, is good for all concerned.
¹In the 1947 movie, “A Miracle on 34th Street,” there’s a scene where, to the shock of management, the Macy’s Santa sends a client across the street to archrival Gimbels. We really do send prospects to competitors, but not because we’re Santa.