Uma

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Jan 8, 2010 12:46 pm

This thread is in part prompted by the mention of EJ getting a UMA platform (eventually).  I am wondering what everyone's take is on them.  I have my own opinions, but it is based off of the back office prospective.  What are your general thoughts?  Are they worth it?

Jan 8, 2010 1:24 pm

I think they are worth it, ESPECIALLY for NQ accounts.  Most of my NQ accounts are not traditional MFD/ETF asset allocation portfolios.  They hold stocks, bonds, funds, etf's, CD's, etc.

 
In addition, like we have said in other threads, some people like to manage different ways, and some clients have different needs.  There is no reason that you should not be able to give people 25 stocks for their domestic large-cap allocation, and then use funds/ETFs for small-cap, international, etc.  Or individual muni's for income and funds for other things.  And sometimes people transfer in (or inherit) large blocks of stocks that they don't necessarily want to sell (nor should they need to necessarily).  They want you to follow them, give advice on them, let them know when to sell, what to buy, etc. and you only get paid on any potential transactions.  Then you have to worry about how big the commission is.  You know how many times I have heard a vet say (in regards to a huge portfolio of stocks owned by some little old lady) "hopefully she'll die and you can liquidate the whole portfolio...that's a huge payday!"   WTF!?  You get paid thousands of dollars just to push the buttons for someone that dies, but you got paid nothing while you were monitoring the account?  The FA in our region that to-date has the highest single-month production EVER in our region was like $127K (one month).  You know how it happened?  He had a $10mm client die, and the beneficiaries wanted ALL of it liquidated, so he and Jones collect like 100K on it.  That is so bass-ackwards.  There's just no correlation between the transaction and what the client paid, either before she died, or after.  And that doesn't just happen at EDJ, it happens all the time in brokerage accounts other places.  I had a $2mm client die this summer that had lots of stocks (from the 50s/60s/70s/80s, etc.).  I spent hours upon hours with my BOA collecting paperwork, getting cost basis in order (it was a trust), faxing and mailing signatures all over the country (there were 4 beneficiaries in 4 different states), dealing with how they wanted it split up, etc.  And I made nothing on the account.  Zip, zilch, nada.  And I virtually never made anything before that, even though I had quarterly calls with the trustee, reviewing yields, figuring out "Mom's income", what she needed, etc.. 
 
So I guess that's why I think UMA's can be useful in some situations.  Don't get me wrong, not every acount is appropriate for a managed account (with a fee).  I have some clients that are happy to just call every few months and buy a muni, or a few stocks, etc. and don't need much help.  They are the older folks that don't believe in online/discount brokers, so we are basically just their "brokers".
Jan 8, 2010 2:08 pm

Thanks for the response B, but I think we may be talking about different things.  When I talk about a UMA, I mean a managed account that is allocated to different subadvisors - and maybe an ETF or 2.   How I hear it sold by the devil, I mean marketing, is that you can have different managers all under one account number (instead of 3 accounts for the three managers, and an extra advisory account for the ETFs).

 
Is that what you are talking about?
Jan 8, 2010 2:34 pm
B24:

I think they are worth it, ESPECIALLY for NQ accounts.  Most of my NQ accounts are not traditional MFD/ETF asset allocation portfolios.  They hold stocks, bonds, funds, etf's, CD's, etc.

 
In addition, like we have said in other threads, some people like to manage different ways, and some clients have different needs.  There is no reason that you should not be able to give people 25 stocks for their domestic large-cap allocation, and then use funds/ETFs for small-cap, international, etc.  Or individual muni's for income and funds for other things.  And sometimes people transfer in (or inherit) large blocks of stocks that they don't necessarily want to sell (nor should they need to necessarily).  They want you to follow them, give advice on them, let them know when to sell, what to buy, etc. and you only get paid on any potential transactions.  Then you have to worry about how big the commission is.  You know how many times I have heard a vet say (in regards to a huge portfolio of stocks owned by some little old lady) "hopefully she'll die and you can liquidate the whole portfolio...that's a huge payday!"   WTF!?  You get paid thousands of dollars just to push the buttons for someone that dies, but you got paid nothing while you were monitoring the account?  The FA in our region that to-date has the highest single-month production EVER in our region was like $127K (one month).  You know how it happened?  He had a $10mm client die, and the beneficiaries wanted ALL of it liquidated, so he and Jones collect like 100K on it.  That is so bass-ackwards.  There's just no correlation between the transaction and what the client paid, either before she died, or after.  And that doesn't just happen at EDJ, it happens all the time in brokerage accounts other places.  I had a $2mm client die this summer that had lots of stocks (from the 50s/60s/70s/80s, etc.).  I spent hours upon hours with my BOA collecting paperwork, getting cost basis in order (it was a trust), faxing and mailing signatures all over the country (there were 4 beneficiaries in 4 different states), dealing with how they wanted it split up, etc.  And I made nothing on the account.  Zip, zilch, nada.  And I virtually never made anything before that, even though I had quarterly calls with the trustee, reviewing yields, figuring out "Mom's income", what she needed, etc.. 
 
So I guess that's why I think UMA's can be useful in some situations.  Don't get me wrong, not every acount is appropriate for a managed account (with a fee).  I have some clients that are happy to just call every few months and buy a muni, or a few stocks, etc. and don't need much help.  They are the older folks that don't believe in online/discount brokers, so we are basically just their "brokers".
 
The more posts that I read of yours, the greater I have a sense of respect for what you are trying to do from an intellectual and value perspective. I really think that you are doing your business the right way...
Jan 11, 2010 12:39 pm

UMAs with different SMAs in it, as well as ETFs, make alot of sense

Jan 11, 2010 1:05 pm

Do you find that they perform just as well as having seperate accounts for each manager?