It’s been called many things over the years. Unified managed household. Aggregated accounts. Complete household view… just to name a few.
All of these terms are similar. When they first started being used, they all meant essentially the same thing. But a household view (or whatever you want to call it) is not enough anymore. Advisors need to manage and coordinate assets at the household-level – across accounts –optimizing for risk and tax – and maximizing after-tax returns.
It’s a tall order. One that’s taken years for some of the largest financial services companies to figure out. But now, some of them have. The industry has embraced the concept of householding and companies like Morgan Stanley, AdvisorPeak, and (shameless plug) LifeYield are at the forefront.
The recent panel we hosted, moderated by Gavin Spitzner, will guide us through the rest of this post. You’ll hear the most intricate learnings from Eric Lordi – Managing Director and Head of Platform Development at Morgan Stanley, Damon Deru – Founder and CEO of AdvisorPeak, and Harry Bartle – EVP of Enterprise Sales at LifeYield as they implement household systems across the industry.
What is householding?
Householding is the practice of managing and coordinating assets across accounts at the household level. This includes optimizing for risk and minimizing taxes – two of the key elements that advisors can control when managing a complex client portfolio.
Householding used to mean obtaining an aggregated view of accounts within a household. That’s great – but it doesn’t meaningfully improve outcomes for the client. A view is worth nothing without action.
The history of householding
Householding has evolved over the years. It used to be householding for fees and billing. Then we advanced, and you could finally see the entire household. Today, we take that aggregated view to the next level by coordinating assets across accounts to minimize taxes, address risk, and improve outcomes.
Advisors have weaponized spreadsheets to get this complete view of the client. It’s what the progressive advisors have been using for years to execute this concept. The spreadsheets are amazing – no doubt about it. But they leave too much room for inconsistency and human error.
Now that we're here and can act on the aggregated view of accounts, we can never go back.
The challenges of householding
When creating an enterprise household system as Eric Lordi did at Morgan Stanley, there were more challenges than they could count.
- What pieces will we build ourselves?
- What will we contract out to partners?
- Where will we focus?
- Where do we start?
The planning process was key to execution. Everyone knows that – but when building a complex system that cascades down to thousands of advisors managing hundreds of billions of dollars – the stakes are high.
Eric’s mission was first, to tie together a complete household view of a client’s accounts. “We needed to embrace householding, particularly because of planning, and have a very tight integrated efficient system that works at that level.”
In terms of putting the system together, integrations were crucial. Morgan Stanley taps into expert partners like LifeYield to drive the operational aspects of their platform. This allows them to be laser-focused on the advisor experience. And is a key differentiator in the success of the platform they built.
“What we’ve done is build a really strong foundation that started with planning and proposal.” Morgan first created their own core planning system and investment proposal system that could tie together all accounts and make sense at the relationship level. It then needed to model different scenarios, rebalance across accounts, and optimize for taxes. That’s where they focused next.
Household-level rebalancing and decumulation
This may be the biggest need as boomers approach retirement. Drawdowns are going to be a major topic among advisors, especially given the uncertainty with Social Security. And with all the insanity in the market, rebalancing activity is up significantly this year alone.
AdvisorPeak built its entire company on this concept. They are in the process of launching the industry’s first true household-level rebalancer.
And Morgan Stanley may not have seen this activity coming, but they were prepared.
Morgan recently implemented an intelligent withdrawal solution, which can identify the most tax-efficient way to make withdrawals across multiple accounts.
When you make a withdrawal, you want to keep your asset allocation in line, sell mis-located assets first, and create a list of trades to execute. This approach will allow you to keep your portfolio consistent and keep more money in your client’s pockets.
This decumulation approach gives you something positive to talk about with clients during turbulent times. And if this year taught me anything, it’s that turbulence is inevitable.
Be Netflix, not Blockbuster
Here’s an analogy we all understand. Look at Blockbuster as individual account management. There are some people who are stuck on going to the movie store and managing account by account. This can’t be helped. Some people are stuck in their ways. And they ultimately will fall behind.
Now, look at Netflix as householding. It’s a whole new world starting with a clean user interface that executes household-level management with precision, across systems. Eventually, householding will be the norm – just like many young people today defaulting to Netflix for TV content.
We’re in the middle of this development right now. But until householding is adopted universally across our industry, we’ll continue to beat the drum.
For more info on how to get started with householding, check out this on-demand expert panel featuring Damon Deru, CEO of AdvisorPeak, Eric Lordi, Managing Director, and Head of Platform Development at Morgan Stanley, and LifeYield EVP of Enterprise Sales, Harry Bartle.