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Wells Fargo Adds Smart Beta to FA Platform

By Murray Coleman October 27, 2017

As banks rush to catch a wave of robo technologies, Wells Fargo Advisors is rolling out a factor-based approach designed for advisors and their clients.

The wirehouse has launched an expansion to its electronic model portfolio services platform, according to Patty Loepker, WFA’s head of research directed advisory programs. The new managed accounts program features allocations built around smart beta ETFs.

Such portfolios went “live” to advisors last week on WFA’s so-called Allocation Advisors digital platform.

“This is a program we’ve had in place for years as a way for advisors to use managed ETF portfolios so they can concentrate on working with clients,” Loepker says.

Retail investors can take advantage of smart beta ETF managed accounts once WFA’s Intuitive Investor cyborg platform moves forward, says Mark Litzerman, head of global portfolio management at Wells Fargo Investment Institute. The wirehouse’s foray into mass affluent robo advice is still operating in its pilot stages for a select group of company executives and brokers.

Smart beta portfolios represent a new wrinkle for WFA advisors, Loepker says.

Until now, they’ve only been able to tap into managed ETF accounts using broad-based passive funds. But several different variations do exist as portfolio mixes are divvied up into strategic, cyclical and tactical variations. Within those general mandates, WFA breaks down options for FAs to use by investment objectives related to risk appetites and income needs.

Besides internally managing such ETF portfolios, WFA’s evolving ETF platform for advisors also includes outside managers such as Sage Advisory and Morningstar. “For the most part, our outside managers are going to still be most highly represented in our traditional separately managed account platform,” Loepker says.

That includes WFA’s wrap SMA platform, Masters. It also provides distribution of Unified Managed Accounts through the Diversified Managed Allocations, or DMA, platform. Those two programs now account for roughly $60 billion in assets under management, according to Loepker.

By contrast, the Allocation Advisors platform oversees about $30 billion, she estimates. “So this is a much smaller program, but it’s very different – it’s comprised of fully allocated portfolios across globally diversified strategies,” Loepker says. “The Masters and DMA platforms are by and large single-style investments.”

New smart beta ETF models are designed and managed by WFA using third-party ETF providers, Litzerman points out. “These portfolios aren’t 100% smart beta ETFs,” he says. “We complement passive ETFs with multi-factor ETFs.”

The mix is designed to help keep overall portfolio costs down, WFA claims. Along with more generic index-based funds, Litzerman explains that smart beta ETFs being used typically blend factors such as growth, value, low-volatility and momentum.

“We add smart beta ETFs to enhance the expected long-term outcomes for our clients,” he says. “These portfolios also help advisors to differentiate their offerings from other products in the market today.”

The Allocation Advisors platform has “always been delivered electronically,” notes William Trout, head of wealth management research at Celent.

The introduction of smart beta ETF portfolios designed to lower volatility and spread market risks, he adds, is an interesting alternative for advisors. “A lot of these smart beta ETFs just aren’t that great – they haven’t been thought out very well in terms of dealing with different types of market risks,” Trout says. “When the next big market downturn takes place these funds could prove vulnerable.”

William Trout

By coming out with professionally managed smart beta portfolios, he believes advisors will get a “more thorough” vetting of a “hot” investment product. “It’s a way to embed more value for advisors into the investment planning process,” Trout says.

Wells Fargo is coming to the U.S. smart beta market relatively late in the game, he points out. “But in terms of expanding their base of banking customers, this is still an innovative approach – very few banks up to this point have been able to successfully bridge digital delivery models for both advisors and end users,” Trout says.

For example, he notes that UBS has “really struggled” to fully implement a robo service even though they’re partnering with SigFig. So has U.S. Bank, according to Trout, which is working with BlackRock’s robo provider FutureAdvisor. Merrill Lynch has launched a robo service, but he suggests “that’s a different animal since it’s part of an existing Merrill Edge” platform.

“If Wells Fargo can get a digital advice platform off the ground that offers a smart beta investment alternative,” he says, “then they’re going to be on the cutting edge among major banks.”

His own research shows that banking customers aren’t always keen to shop for rival investment deals. “At the same time, wirehouses and banks realize they’re facing increasing competition for those clients’ static investment dollars,” Trout says. “So we’re seeing a push in brokerage platforms to upgrade their investment platforms – both for end clients as well as advisors.”