Since their introduction within the Nineties, unified managed accounts have appeared like a horny software for portfolio administration. The promise was that advisors might higher customise a shopper’s portfolio, particularly for high-net-worth and ultra-high-net-worth shoppers, by bringing various property right into a single account that may very well be extra effectively and successfully managed.
UMAs differ from individually managed accounts in that SMAs deal with one particular funding technique. Whereas each SMAs and UMAs could be personalized to an investor’s preferences, UMAs consolidate a number of funding automobiles and methods right into a single account together with SMAs, mutual funds and ETFs, and many others.
But at the moment, regardless of clear advantages, the promise of UMAs has solely been partially realized. In accordance with Cerulli, 22% of managed account property had been in UMAs as of 2022. This represented vital progress—that quantity was simply 4.1% in 2008—however given the obvious benefits of UMAs, why isn’t it even increased?
It’s as a result of many advisors use UMAs with restricted capabilities, that means sleeve-level reporting and rebalancing take numerous guide effort. Nonetheless, the progress in utilization of UMAs regardless of these shortcomings exhibits there may be an urge for food for what UMAs promise. With extra training on what to search for in a UMA and how one can use it successfully, many advisors and corporations will discover them a useful gizmo that may profit each their enterprise and their shoppers.
How Can UMAs Profit Advisors?
Take this situation many advisors will acknowledge: A shopper has a number of accounts and needs to withdraw $50,000 for a serious buy. After the withdrawal, the portfolio could also be unbalanced—maybe the funds got here from a conservative funding, and now the shopper’s threat publicity within the left property is just too excessive. So now the advisor must go to every account, run experiences, add up the element investments and discover locations to reallocate to carry the entire into order.
A UMA permits totally different investments to be housed in separate sleeves, but lets an advisor handle them as one. For instance, the advisor can apply rebalancing throughout all of the sleeves to make sure the general portfolio aligns with the shoppers’ most well-liked funding technique.
Not All UMAs Are Created Equal: What Advisors and Corporations Ought to Look For
The obvious difficulty with many UMAs is that they don’t actually unify all property. The time period “UMA” isn’t validated by a 3rd occasion, so in some instances platforms provide UMAs that solely permit sleeves made up of alternate listed securities akin to ETFs or shares. Accounts for mounted revenue or options are nonetheless separate, negating among the worth of a UMA.
One other problem: Some so-called UMAs don’t permit sleeve-level reporting. If a shopper needs to see how one sleeve is performing, the advisor nonetheless should manually tally the investments of that sleeve to supply a report.
Sadly, if advisors have a nasty expertise with limited-utility UMAs or hear others complain, they might write off the idea altogether. In actuality, sturdy UMA options can be found at the moment, and the event of UMAs that may incorporate extra sorts of investments, akin to options, will solely make them higher.
As advisors and corporations think about using UMAs for shoppers, they should absolutely perceive the capabilities of every platform they’re evaluating and examine them fastidiously. Listed below are 5 issues to search for in a UMA:
Why UMAs Are Heating Up and What They Provide for the Future
The elevated recognition of UMAs is being pushed by a wide range of tendencies within the wealth administration universe.
First, traders have gotten extra refined, particularly within the high-net value house. They’re extra more likely to have advanced portfolios and efficient administration requires the correct instruments. UMAs present traders with a simplified view of their holdings.
Second, advisors are below stress to do extra for his or her shoppers. Making use of third-party methods permits them to outsource a few of their work to specialists whereas they preserve oversight and supply recommendation past investments. Including these layers, nonetheless, additionally provides complexity, so instruments like UMAs allow extra environment friendly rebalancing, reporting, billing and tax administration.
Third, the consolidation within the wealth administration trade, notably the rollup of RIAs, is creating corporations that inherit the administration of all types of property in all types of accounts. By providing UMAs, these roll-up corporations can present their advisors with a single platform that can be utilized by all.
Sooner or later, extra advisors and corporations will use UMAs, benefiting from significantly improved efficiencies whereas providing every investor customized service. This might probably result in higher outcomes for advisors and traders alike.