Separately Managed Account Lifecycle
Rohan Rekhi
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Manage the Account Lifecycle
All SMA accounts progress through a number of stages, from creation to termination. This progression is known as the "account lifecycle". Two types of events result in an account moving to its next stage: either new information arrives from the sponsor, or a user does an action, such as an approval. For example, an account that is?Awaiting Funding?will change to?Awaiting Trade Authorization?when funding arrives and is approved. Eventually, the account transitions to?Active?and is eligible for trading, provided that the account is reconciled and within the discretion period. This article does not suggest any particular implementation but explains general lifecycle of the Accounts.
The actions users can take on an account are restricted by their role. For example, one user might have the ability to deposit funds into an account where they will await approval, while another user has the ability to approve the funding for the account.
In general, an account lifecycle can have three principal phases:
Standard Pre-Active Account Lifecycle
The standard pre-active account lifecycle describes the stages an account goes through from inception until it reaches the active state. The illustration below shows an out-of-the-box pre-active account lifecycle.
The states in the out-of-the-box pre-active account lifecycle are as described below.
Description
Review Suitability Issues
The account is awaiting a review to determine whether the account properly meets suitability requirements, such as an account minimum.
Rejected Account
The account has been rejected, typically due to suitability issues such as not meeting the established account minimum or not achieving manager acceptance.
Approve New Account
The account has been successfully reviewed for suitability and is awaiting approval.
Awaiting Funding
The account has been approved and it is now waiting for funding information from the sponsor.
Approve Funding
The account’s funding information (e.g., a deposit) has been received and it is now pending funding approval by the manager.
Awaiting Trade Authorization
The account has funding and is now waiting for a trade authorization message (with a trade authorization date) from the sponsor.
Awaiting Manager Acceptance lifecycle state
The account has received trade authorization and is now waiting for manager acceptance of trade authorization.
New Security Funded Account lifecycle state
The account has been authorized to trade, has been funded by securities, and the securities must be liquidated so that the account can be invested into the model.
Invest Account into Model lifecycle state
The account has been authorized to trade and is awaiting approval to be invested into the model.
Active lifecycle state
The account is active and ready for trading.
Standard Active Account Lifecycle
The standard active account lifecycle describes the states an account goes through while it is active (i.e., holding positions and available for trading).
There are two types of operations available to an active account: operations that can be automatically approved (without user intervention), and non-automatic operations and states, which generally do require user intervention for approval and transition to the next state.
Operations that are usually automatically approved are shown in the illustration below.
Other active lifecycle operations and states (requiring manual approval in order to transition to the next state) are shown in the following illustration.
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The states in the standard active account lifecycle are described below.
Active
The account is active and ready for trading.
Approve Allocations
The account’s allocations have been changed and the account is awaiting approval of the changes before it can become active again.
Approve Profile Changes
The account’s profile has been changed and the account is awaiting approval of the changes before it can become active again.
Approve Restrictions
The account’s restrictions have been changed and the account is awaiting approval of the changes before it can become active again.
Approve Investment Manager Change
The account’s investment manager has been changed and the account is awaiting approval of the change before it can become active again.
Approve Client Number Change
The account’s client number has been changed and the account is awaiting approval of the change before it can become active again.
Approve Model Change
The account’s model has been changed and the account is awaiting approval of the change before it can become active again.
Approve Cash Change
The account’s cash situation has been changed (e.g., a withdrawal has occurred) and the account is awaiting approval of the change before it can become active again.
A custom configuration of the account lifecycle may make use of threshold limits. If so, approval or rejection is not required when a deposit or withdrawal is below the defined custom threshold. Amounts below the custom threshold are automatically approved and have no effect on the account lifecycle. Amounts above the custom threshold require explicit approval or rejection, and the account lifecycle state changes accordingly. (The custom threshold can be defined as either "less than " or "less than or equal to".)
Approve Strategy Change
The account’s strategy has been changed and the account is awaiting approval of the changes before it can become active again.
Liquidation of Securities for Terminations
Automated processes can be set up to handle full and partial liquidation of securities when an account terminates, when a sleeve terminates, when the investment style changes (which terminates a manager, sometimes by substituting a new manager), and when a manager terminates.
Similarly, liquidation processes can be set up for programs that require managers to liquidate holdings before an account or sleeve can be given to a new manager, or because the account or sleeve has terminated. A defined termination workflow can be used to manage of the liquidation for the account or sleeve.
The liquidation process typically begins with a step that contains specific information, such as account- and/or sleeve-level liquidation instructions that include the list of securities and quantities to be liquidated. The manager who has “liquidation discretion” (as determined by settings on various levels) can then generate the associated liquidation trades using Trade Generation feature.
In the case of a manager termination, the account’s and/or sleeve’s “trading discretion” setting can also automatically be updated in accordance with the change.
These scenarios are described here:
Automated Liquidation of Securities for Accounts
?Individual sleeves can only be terminated through a Style Change; you cannot send a manager termination request for a sleeve. The following steps show an example of how automated liquidation of securities might work with account termination.
Automated Liquidation of Securities for Investment Style Change
The following steps show an example of how automated liquidation of securities might work for an investment style change.
If the style change resulted in a new sleeve, it is now present in the account.
Automated Liquidation of Securities for Investment Manager Change
I will continue these thoughts on Separately Managed Accounts my next Article
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