Technology provider eager to show how overlay supports wealth management. Smartleaf has hired Todd Smurl, formerly an executive in Compass Bank's wealth-management group, to lead the Cambridge, Mass.-based firm's efforts to promote open-architecture advisory and to provide consulting services related to implementing it through its overlay technology.

As Smartleaf's chief investment officer and director of advisory services, Smurl will be based in Houston.

"While at Compass Bank, Todd was an industry leader in creating an open architecture unified managed account (UMA) platform," says Gerard Michael, Smartleaf's co-founder and CEO. "At Smartleaf, Todd will continue to provide thought leadership in 'best practices' behind the implementation, adoption, and marketing of overlay management platforms in a wealth-management environment."

Advocate

UMAs feature a blend of separately managed accounts (SMAs), exchange-traded funds and mutual funds in a single account. Generally speaking, UMAs have lower investment minimums than the aggregate minimums for comparably diversified portfolios of stand-alone SMAs.

Overlay management is the process of reconciling holdings across sub-accounts, aligning trading activity, managing cash flow and enhancing the overall tax efficiency of portfolios.

Smurl previously led Birmingham, Ala.-based Compass' search for an overlay-management system that would give it access to non-proprietary managers, provide trade management, allow it to control the entire investment process and keep costs down. After a protracted search, Compass selected Smartleaf's technology to fill that role in 2004. By the end of 2005, Compass' new investment-advisory platform, which it combined with Denver-based Prima Capital 's manager research, was converting assets over to its Smartleaf-powered investment-consulting platform.

Around that time Smurl emerged as a fixture on the SMA conference circuit, extolling the advantages of in-house or application service provider (ASP) overlay options like Smartleaf's over outsourced options like those provided by leading overlay managers such as Placemark Investments and Parametric -- though without necessarily naming them.

Both worlds

These providers counter that their lift-out approach is well suited to large, retail-oriented investment programs while Smartleaf's technology is best suited to a niche market of "hands-on" bank-trust departments and high-end investment advisories that blend in-house managers with outsiders.

Smartleaf, meanwhile, holds that all-in outsourcing is just an early-stage approach to open-architecture investment consulting. Over time, ASP versions -- which now account for a sliver of UMA assets under administration -- will rival the outsoucers' market share, even in the brokerage and big-bank channels.

In fact, Smartleaf says it's working with at least one SMA operations provider -- it won't say which -- to offer Smartleaf technology for portfolio rebalancing and optimization within a larger SMA business-service complex. Smartleaf's rival Upstream performs a similar role in Citigroup's SMA-ops outsourcing program. "In this role we will have few direct clients," says Justin van Til, Smartleaf's head of business development. "We want to be viewed as the 'Intel inside' for our partners."

Ways ahead

Smurl will support this approach by promoting overlay management as a conference speaker and panelist, and by positioning Smartleaf as a consultant on open-architecture platforms to wealth-management entities of all stripes, drawing on his own experience with the Compass implementation. "There are a lot of mid-tier banks, for instance, that want open architecture but face resource constraints" says Smurl. "Our role will be to teach them how to use it efficiently and cost-effectively and give them the option to use [Smartleaf] later."

Smartleaf is also working to win more business from registered investment advisors (RIAs) through partnerships with core accounting-system providers in that space. Smartleaf has been an overlay option to banks through Sungard's Advisor Technologies, a third-party SMA-platform provider since late in 2004 -- an arrangement that has brought in more than half of its customer base to date. Smurl comes to Smartleaf after about 15 years in wealth management. Before joining Compass in 2003, he held several positions with Bank of America's private bank including head of alternative investments, regional investment strategist and senior portfolio manager.

Smartleaf says its technology touches about $7 billion across about 50 investment advisory programs. Most of its clients are banks but it also works with broker-dealers and RIA firms. -FWR

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