The unified managed account (UMA), the latest permutation of a separately managed account (SMA), is being billed as the “next big thing” for financial advisors. Such billing is cause enough for skepticism, but the UMA does appear to have all the ingredients needed for delivering a fully diversified, customized portfolio for the tax-sensitive retail investor—albeit at a princely price to the client.
A cross-section of asset managers and SMA platform sponsors met in New York last week for the Money Management Institute’s (MMI) Fall conference, where industry bigs discussed the tremendous growth opportunities that exist for this next-generation vehicle, which targets advisors seeking to shift their business to a mostly fee-based model.
The idea of handling an investor’s stocks, bonds, managed accounts and mutual funds in one “umbrella account” gives the advisor and manager a better grip on the client’s overall financial plan. And it simplifies the investment process for the client, who can focus on one account statement, similar to a phone bill or a personal checking account. Making UMAs more readily available can also persuade some customers to take assets that have been scattered among different brokerage firms and place them in a one-stop shop account that enables them to restrict certain securities. Also, the fee for a UMA is generally 2 percent, according to an MMI source, although the fee drops for larger portfolios.
Matt Schott, a senior analyst at Needham, Mass.-based research firm TowerGroup, and a keynote speaker at the conference, believes there are greater rewards—well beyond those of convenience—for clients who tap the UMA as their primary investment vehicle. With a 360-degree perspective on a client’s assets, advisors can “execute a solid investment strategy in a disciplined process that ties back to the client’s goals,” Schott says.
“Clients want goal-oriented advice and investment efficiency that provides them with peace of mind,” and Schott believes UMAs can better provide that since advisors can spend less time doing paperwork and administrative tasks, and spend more time focusing on the client.
Schott says UMAs will always have room to improve, but at least for now, a “huge layer has been peeled back that lowers obstacles for advisors” that, in the past, kept planners from offering them.
“This is a tremendous opportunity for financial advisors,” says Chris Cosentino, director of communications for MMI. “For the rep who wants a fee-based business, the UMA will be a great growth factor.”
Although assets held in separately managed accounts have shown tremendous growth in the past five years, that growth has slowed in recent months. Still, the latest data from MMI show total assets grew 17 percent to $620 billion as of June 30, up from $529 billion from the end of the second quarter last year. Assets are expected to eclipse the $1.5 trillion mark by 2011, the MMI says.
But some industry insiders are not convinced that the UMA is a silver bullet. Barry Mendelson, founder and managing director of Capital Market Consultants, a business consulting and investment advisory firm in Milwaukee, believes some investors may just want to stick to what they have. “If a high-net-worth investor with $500,000 could be happy and meet his investment objective within risk tolerance with a single SMA that is balanced with a combination of stocks and bonds, he or she might not want something more complicated like a UMA. If simplicity is what they value, they’ll stick to it.”
Mendelson also shakes his head at the idea of the UMA solving every advisor’s problem. “The UMA will be used most efficiently by the best advisors. In the end its only a tool, and the tool is only as good as its operator,” he said.