From the July 2006 issue of Investment Advisor • Subscribe!

Retirement Advisor Profile

Novice UMAs: Just Right for Boomers

Len Reinhart is a staunch believer that using the relatively new concept of unified managed accounts (UMA), also dubbed unified managed households (UMH), is the best way to create a pension fund for retiring boomers. "There's no one product that can meet [retiring boomers'] needs," says Reinhart, president of Lockwood Advisors, and the newly minted chairman of the Money Management Institute (MMI). Advisors' mission in helping boomers, he says, is to manage a personal retirement plan, one akin to the model used by institutions that offers a multi-asset class, multi-investment platform. "That's what a unified managed account is: a single offering of a multi-product solution."

Unlike separately managed accounts that generally invest in stocks, bonds, and cash, a UMA allows investors to combine multiple investments into one solution--like ETFs, REITs and so on--and to access investments they wouldn't normally be able to, like hedged mutual funds, commodities, long/short equity, and emerging markets. "The beauty of the UMA is that you're getting the diversification to the client who may not have hundreds of millions of dollars" to invest in a separately managed account, Reinhart says.

Lockwood, which was acquired by Pershing and The Bank of New York, launched its own UMA called Lockwood Investment Strategies about two years ago. The UMA now has about $600 million in assets, and Reinhart says Lockwood recently starting marketing it through Pershing's broker/dealer network, so it's "starting to grow nicely."

Well known as an SMA manager, Lockwood also manages its entire UMA process--picking the managers, the investments, performing rebalancing and tax optimization--on a discretionary basis for other advisors, Reinhart says. The UMA invests in ETFs, mutual funds, REITs, hedged mutual funds, long/short funds, and commodities, he says, "but we're presenting it to the client as one overall solution." Lockwood's UMA has five different strategies--different risk levels and growth prospects--he says, and "we offer those same five [strategies] with alternative investments, meaning long/short commodities and hedged mutual funds." Lockwood's typical client is putting just under $1 million in the UMA, he says, so they don't have enough assets to invest directly in hedge funds.

With a UMA, you're also not charging "conflicting fees" Reinhart says--that is, levying higher fees for money that goes into hedge funds as opposed to mutual funds. It's too early to say what the typical UMA fees are, since there are "too few true UMAs" out there, Reinhart says. But Lockwood Investment Strategies charges about 35 basis points for an investment of $250,000. If an SMA is used, the SMA manager would get an additional 20 to 25 basis points; plus, ETFs, mutual funds, and hedge funds charge an expense ratio. "We're looking for the lowest expense ratio, so we're using a lot of ETFs right now," Reinhart says.

The UMA is a still a novice approach, but Reinhart believes the UMA is the approach "that's going to work in the future" in helping boomers address their income needs. At Lockwood, "there are still things we want to do that will make [the UMA] more attractive," he says, like "adding leveraging or using leveraged ETFs, and looking at ways to bring insurance guarantees--minimum monthly withdrawal guarantees" into the UMA.

One of Reinhart's missions during his yearlong tenure as chairman of the Money Management Institute will be to "expand the mission of MMI to cover more than just SMAs," he says. "The SMA business is evolving into the UMA/UMH business; we're trying to get people to understand that." With hedge funds as members, Reinhart says MMI wants more mutual funds and ETF manufacturers to join the institute. "We want the product providers that can be in this managed account solution--the UMA--so that we can work with them about communicating taxes and so on," he says. "The more we can communicate data to each other, the better each firm can build their UMA for the investor." MMI will also continue its dialogue with regulators. While the SEC has been looking at managed accounts, and managed accounts audits "have been more intense" as of late, he says, there's no "burning" regulatory issue hovering over the managed accounts industry. Another MMI initiative for the coming year: the "standardization of data to make it easier for money managers to operate within the SMA construct," he says.

Washington Bureau Chief Melanie Waddell can be reached at

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