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November 1, 1998

Divided Duties on the Desk

By Michael L. O'Reilly

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  • Divided Duties on the Desk

Quite simply, Timothy M. Sheridon is a trader at Harris Bretall Sullivan & Smith in San Francisco. But he has two distinct responsibilities at the firm.

Sheridon spends half of his time trading for Harris Bretall's own accounts, mostly for pension funds and high net-worth individuals.

He also trades for the various wrap programs Harris Bretall manages for major brokerage firms.

"We've seen the most growth in wrap accounts," Sheridon said. "Even with the market down recently, our clients are still adding money and opening more accounts."

Wrap accounts are investment portfolios, set up and marketed by brokerage firms, allowing smaller investors access to institutional money managers. The brokerage firms turn maintenance of the wrap accounts over to money-management firms that charge a handling commission.

Harris Bretall manages $2.3 billion in assets, equally divided between its own accounts and its wrap accounts. The firm places a $1 million minimum on its managed portfolios. The wrap accounts allow smaller investors to access Harris Bretall's money-management experience.

The sponsoring brokers provide Harris Bretall with software packages or direct electronic links into their desks for management and trading for the wrap accounts. While the firm's strategy committee makes overall portfolio decisions, two Harris Bretall portfolio managers handle the various accounts in the programs. Sheridon and three other traders execute orders for the accounts.

"What is complicated is the different software packages. That can be a challenge," Sheridon said. "We [the four Harris Bretall traders] switch jobs every six months or so to make sure we know every area of our business."

The programs vary in size, running from five to 1,500 investors. The largest wrap program at Harris Bretall has more than $500 million in assets. The firm can trade for the entire program, or single out a specific client or group of clients for directed orders.

Harris Bretall invests almost entirely in U.S. large-cap equities. Most wrap trades are electronically executed on the New York Stock Exchange's DOT systems, with orders over 5,000 shares handled manually.

Sheridon said that traditionally, any large order in a wrap program was directed to the broker who set up the account. So, Sheridon, for example, would work a block order in a PaineWebber wrap program to the firm's New York trading desk.

But recently, brokers have given Harris Bretall more flexibility over the wrap accounts. "With more control, we can search more for best execution," Sheridon said.

In his six years at Harris Bretall, the firm's wrap business has nearly doubled, to almost $1.2 billion in assets. But despite the growth at Harris Bretall, Sheridon said wrap accounts get little attention on Wall Street.

"Not many people know much about wrap accounts," he added. "But managed assets are becoming more important to Wall Street firms. Trades of 250,000 shares or more happen almost every day in wrap programs."

Because wrap accounts are handled by only a handful of firms, Sheridon has built close relationships with his wrap brokers. "I've got one guy that I can practically grunt to on the telephone and he knows its me," Sheridon laughed. "It's scary."