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by Richard Marulanda

Roger Paradiso, director/chief investment officer and managing director of Private Portfolio Group, Morgan Stanley Smith Barney

DTCC and The Money Management Institute (MMI) have unveiled plans for a new service that aligns with a shift in the managed accounts industry toward model-only portfolios. These portfolios, the latest version of unified managed accounts (UMAs), merge multiple product types, such as separately managed accounts (SMAs) and mutual funds, into a single client account that sponsors (broker/dealers) usually customize for their clients for tax optimization and investment preferences.

DTCC’s technology solution, called Model Management Exchange (MME), centralizes, standardizes and facilitates the model distribution process between investment managers, overlay portfolio managers (OPMs) and model program sponsors.

To formally introduce MME to the market, DTCC and the MMI brought together more than 25 executives from the top investment manager firms (model providers) participating in this market in March. Participants discussed the challenges and strategies of the managed accounts industry and saw a demonstration of the MME solution.

Firms in attendance included Franklin Templeton Investments, JPMorgan Asset Management, Lord Abbett & Co., MFS Investment Management, Morgan Stanley Smith Barney, Natixis Global Associates, Neuberger Berman and Riverfront Investment Group. Hosted by DTCC and the MMI, the conference was held at DTCC’s offices in New York.


In recent years, the SMA market has shifted away from its traditional format – in which asset managers execute trading and transactions – toward an environment where brokerages and external OPMs centralize trading based on the investment model provided.?

Today, sponsors and investment managers rely on disparate systems and ad-hoc processes to manage their model distribution to and from model program providers, resulting in significant inefficiencies and risk within the Model/UMA segment of the SMA industry.

Secure infrastructure

For several years, DTCC has been enhancing the technology of its Managed Accounts Service to support new developments in the market and the ongoing rollout of standard messages by the MMI. However, until now, model portfolios have not had an established infrastructure to process and manage distribution.

“We are very excited about our new Model Management Exchange service, which will bring a much greater degree of operational efficiency and risk management to the managed accounts industry,” said DTCC CEO Donald F. Donahue. “DTCC has four decades of experience in helping the financial industry sort out its processing and distribution problems. Our infrastructure supports virtually all of the securities markets in the U.S., from equities and fixed income, to mutual funds, insurance investments and over-the-counter derivatives. By providing the managed accounts marketplace access to our infrastructure, we can extend the same security, reliability and economies of scale that our other customers enjoy.”

Solid industry support

With a reliable and secure infrastructure in place, the Model/UMA marketplace is now focused on bringing industry-wide adoption of DTCC’s MME solution.

“Together, we have a collective opportunity to grow this market from infancy by leveraging DTCC’s established infrastructure and economies of scale,” said Ann Bergin, DTCC managing director and general manager, Wealth Management Services. “We are confident that we can deliver this service at a reasonable cost for the industry and, as participation expands, the costs will come down.”

In conjunction with the MMI’s work on model message standards, DTCC has been collaborating with several MMI committees and leaders to make sure the managed accounts industry realizes the benefits of standardization in the evolving area of UMAs.

“Now is the time. The work has been done. We must adopt model message standards and work with a central hub,” said Christopher Davis, president, The Money Management Institute. “The MMI Board is putting its shoulder behind this initiative and has unequivocally endorsed a statement in support of the model standards.”

Morgan Stanley Smith Barney’s Roger Paradiso, director/chief investment officer and managing director of Private Portfolio Group, has been a trailblazer for the managed accounts industry, working with the MMI and DTCC for many years on this initiative. “At the end of the day, we need to be certain that we are delivering solutions to clients that help them achieve their financial goals,” he said. “This effort began 10 years ago, and today we all need to take the lead to ensure we create efficiencies that did not exist when the SMA market began. We are committed to this journey and are happy to be part of this evolution.” @