A Collective Effort

Art by Allie Sullberg

The U.S. financial adviser industry is undergoing significant consolidation. Acquired firms that have been surveyed cite a variety of reasons for joining up with larger entities, from new cross-selling opportunities to expanded back-office technical support. According to Wise Rhino Group, there is no shortage of factors driving the record merger and acquisition activity. 

One of the centralized services that smaller firms seek out is investment management due diligence; here the acquirers’ advisers assume 3(21) or 3(38) fiduciary responsibility for the small firms’ client plans. The role of centralized investment management teams within large registered investment adviser aggregators and benefit brokerages has, therefore, been coming into sharper focus. Here are takeaways from discussions with three RIA aggregators about their firm-level investment approach.

CAPTRUST’s 2-Pronged Approach

Michael Vogelzang “Honest engagement and open, two-way communication between the committee and the advisers is the absolutely essential core of the solution.”

Michael Vogelzang, a managing director and the chief investment officer at CAPTRUST in Boston, says the firm uses a two-pronged approach to delivering scaled investment advice. One prong—i.e., team—is referred to as the investment group, or the investment committee, on which sit some 70 CAPTRUST professionals. Vogelzang, as CIO, is chair of the committee. The other team is known as the client solutions group.

“The investment committee’s job is to be working every day, up to our elbows, on understanding what is happening in the capital markets,” Vogelzang says. “Our goal is to understand what dynamics are driving the market’s behavior today and where we could be heading over the coming six months—and over the longer term, as well.”

The team includes due diligence people, alternatives experts and sector specialists. Besides generating their own viewpoints, the committee members strive to have active and productive discussions with all the leading asset managers. Vogelzang says CAPTRUST’s scale and influence are tremendously helpful in this sense, and this is something acquired firms quickly come to appreciate.

“We can actually get in the door and cultivate great relationships with the smartest people at the biggest and best asset managers out there,” he says. “If you are a small firm and you want to talk to the lead portfolio manager of, say, the PIMCO Income Fund, that’s going to be a real challenge, but we can do it. Advisers who join CAPTRUST benefit greatly from this dynamic, as do their clients.” 

As noted, the other team involved in CAPTRUST’s investment advice delivery process is the client solutions group, which is led by Scott Matheson. In basic terms, this is the group that manages the people in the firm who face the clients, out in the field.

“They’re the group that asks and answers the crucial question of how we build and deliver the advisory products that incorporate the investment ideas generated by the committee, across both the 3(21) and 3(38) fiduciary advice formats,” Vogelzang says. “It’s a fantastic collaboration. For collective success, our colleagues in the client solutions group must understand what we’re thinking about the markets, and the committee must understand what our client-facing advisers need  in terms of product design and presentation.”

The client solutions group as a whole spends substantial time talking with the individual advisers and their clients. The goal, Vogelzang says, is to ensure that the individual advisers working in the field understand that they have influence and that their point of view matters. This is a point of “incessant” focus for the firm’s leadership team.

“The further away any individual adviser feels from the investment decisions we’re making as the centralized committee, the easier it will be for them to feel unheard. If they feel like they don’t have agency, they may walk into a client meeting about an underperforming investment and say something like, ‘Sorry, but this isn’t my fault; it’s the investment committee that’s to blame.’ That would be the beginning of the end of our collective success. In such situations, the firm loses credibility, as does the adviser.”

Vogelzang says the formula for successful centralized investing is “not exactly rocket science.”

“Honest engagement and open, two-way communication between the committee and the advisers is the absolutely essential core of the solution,” he says. “If advisers feel like the investment choices are being shoved down their throat, they are not going to want to defend them, and every portfolio, no matter how well constructed, will at some point need to be defended. So, building that joint sense of accountably and ownership in advance of the tough times is so important.”

Committee Collaboration at CBIZ Retirement Plan Services

	Stan Milovancev “… we don’t necessarily have make-or-break votes as much as we engage in debates to create consensus and reach agreement.”
	Matt Felten “It is a bit of an art, interpreting the information we’re getting and ensuring that we pull out the most important and effective information …”

Through macroeconomic research efforts, Matt Felten, a senior investment consultant with CBIZ Retirement Plan Services in Cumberland, Maryland, guides and supports the investment team, providing data-driven analyses that shape the firm’s investment strategies. In collaboration with Stan Milovancev, an executive vice president with CBIZ in Akron, Ohio, and other leaders, the central investment team communicates its view on the topic at hand and implements it at scale.

“Our process starts with the office of our CIO,” Milovancev says. “The first step is to develop and refine our investment viewpoints and philosophies, and the next steps are to articulate them and put them to work for our clients. Our professionals in the field must have confidence in the office of the CIO. I would say we have, through substantial and ongoing efforts, developed a very strong level of confidence among our advisers in the field. Success in this endeavor is all about strong communication.”  

As Milovancev and Felten explain, the central investment team actively seeks out questions and comments from the CBIZ advisers. “We bring advisers in for deep discussions and knowledge-sharing,” Milovancev says. “These are technical and engaging sessions. It’s important to have a culture where you’re able to take feedback, positive and negative. That allows us to meet the needs of our advisers and ensure they feel valued and engaged.”  

According to Milovancev and Felten, as CBIZ is purely an advisory shop and not a commission-based broker/dealer, advisers in the field have substantial confidence in the quality and unbiased nature of the recommendations that come from the CIO’s team.  

“It’s helpful to have an overall approach with extremely limited conflicts of interest,” Milovancev says. “We are truly serving our clients as investment advisers and benefits consultants. Of course, we derive additional revenue via our third-party administration business and through other pathways unrelated to investment advice, but our model gives our advisers a lot of confidence that we’re all on the same side of the table—the advisers, the clients and everyone here.”  

Felton says the team strives to be methodical about how it takes feedback from the advisers in the field. 

“Given our scale, we always run the risk of getting too much information back and of being overwhelmed by it,” he observes. “It is a bit of an art, interpreting the information we’re getting and ensuring that we pull out the most important and effective information that we can apply to our central investment process.”  

In terms of how the office of the CIO functions, it is organized into various operating committees, each with a defined area of expertise and a particular client type or investment function in mind. The committee members are pulled from the firm’s most senior professionals, and there are supporting analysts and researchers inside the apparatus as well.  

“I don’t know if this makes our committee unique or not, but we don’t necessarily have make-or-break votes as much as we engage in debates to create consensus and reach agreement,” Milovancev notes.  

Looking to the future and the firm’s anticipated growth, Milovancev and Felton say, CBIZ’s central investment team and the firm’s advisers are optimistic about leveraging adviser managed account solutions. 

“Matt and his team are driving the analysis for the asset-allocation theory underlying this new approach,” Milovancev says. “It’s fair to say that our leadership thinks this approach will explode in the near future, and the advisers love what they are able to deliver to the individual participants.”  

SageView’s Decentralized Investment Structure

	Todd Stewart “The individual committee members are located all across the field offices of SageView.”
	Jon Upham “But ensuring the client-facing group is well represented on the committee has been beneficial for us.”

As explained by Todd Stewart, managing director of investment research and chair of SageView Advisory Group’s  national investment committee, the firm’s approach to delivering investment advice at scale is somewhat unique in that it is decentralized and not managed out of one home office.  

“The individual committee members are located all across the field offices of SageView,” says Stewart, who is based in Knoxville, Tennessee. “It may give you some insight to know that our committee was using Zoom and working remotely since well before the COVID-19 pandemic. We have taken this approach intentionally, so the committee members can still continue to have consulting responsibilities.” 

To begin with, continuing to act as a client-facing consultant in a particular geography ensures that an investment committee member understands how clients are affected by the centralized investment decisions, Stewart says. The members can see the emerging trends in the marketplace that they might otherwise not see as quickly—if at all, he notes.  

“We don’t want to take an ivory tower approach and base everything in the home office,” Stewart says. “We believe this approach distinguishes us, and it makes us better as a firm. It has been fun and rewarding to integrate the new firms we have acquired into this approach. It’s one they can see the value in, and each new firm adds to the collective expertise.”  

The committee itself is composed of 18 rotating members, who each pledge to serve a two-year term. Of the 18, seven have the power to vote on decisions. Jon Upham, a principal in the SageView Advisory Group, says the accessibility and the client-facing work of the committee members generate a great deal of trust and confidence among the advisers who do not work directly on the committee.  

“With a segregated approach, the view is that you may run the risk of having an analysis team that doesn’t see things practically, from the client’s point of view,” Upham says. “Of course, we do have some specialist experts who aren’t serving the clients directly, and they may instead focus on doing research and working on tools. But ensuring the client-facing group is well-represented on the committee has been beneficial for us. In fact, this environment has allowed us to find success bringing in new firms via acquisition and making the integration process very smooth.” 

Upham says clients appreciate the way SageView makes and communicates its investment decisions, and this has resulted in strong client retention and organic growth.  

“Our leading investment professionals attend finals meetings. When the clients hear that these are the specific professionals who will be serving them and whom they’ll have direct access to—that’s a clear advantage for us,” he says.  

Reflecting on the experience of smaller acquired firms and their advisers, Upham says the vast majority find the committee-based, unified approach to be a great relief.  

“They are used to spending so much time and energy on the investment reporting and the due diligence,” he says. “From day one with SageView, they get to see the disciplined approach we have and the efficiency we can bring to them.”