Adhesion targets RIAs with outsourced overlay option

Thomas Coyle

19 July 2007

Tech firm offers to share discretion on UMAs on expanded WealthADV platform. Adhesion Technologies has expanded WealthADV, its wealth-management platform for independent RIAs, to include outsourced overlay management. Wealth-industry observers say the success of the move could depend on Adhesion's ability to forge links with distribution partners with deep roots in the RIA space.

"Distribution is going to be the million-dollar question for them," says Justin Van Til, head of business-development at Cambridge, Mass.-based Smartleaf, which provides overlay technology, mainly to bank-based wealth managers.

But if Adhesion can tap into robust channels and reach what Van Til calls "the wrap guys who want to go overlay," then, he says, it could bring them "tens of billions in assets."

Upstream

In the context of the unified managed account (UMA) -- a multi-manager, multi-asset class portfolio that typically blends separately managed accounts, mutual funds and ETFs -- overlay management is the process of running models-based portfolios with an eye to aligning trading activity, managing cash flow and enhancing their overall tax efficiency.

There were about $125 billion in UMA assets under management at the end of 2006, according to one industry estimate. Together with multiple-discipline accounts -- which blend different styles of the same asset class, usually equities -- UMAs are expected to cross the $500-billion threshold by 2011.

Adhesion uses Boston-based Upstream Technologies' model-management, investment-management and trade-order-management systems as the engine of its overlay offerings.

Until recently Adhesion's overlay -- one component of a web-based technology platform that includes back-office functionality, performance reporting and a multi-manager UMA program -- came only as a do-it-yourself option. That's mainly because Adhesion assumed most RIAs would prefer to run their clients' UMAs themselves.

New normal

"We thought they wanted to hang on to the overlay," says Adhesion's CEO Michael Stier. "But in our experience that's the exception: for they most part they want to let it go."

The other reason Adhesion is coming out with the outsourced overlay option now, about 20 months after rolling out its investment-management module, is that it was keen to get its UMA offering to market back in 2005.

"There was no grand design in coming out with one is coming down to the point where I'm not sure the RIA will want to do it in house," he says. -FWR