Unified Managed Accounts have garnered an impressive amount of assets since they were rolled out at major wirehouses beginning in 2002. Cerulli data as of the fourth quarter 2010 show that wirehouses manage some $73 billion in UMA assets, with a year-over-year growth rate of 60.5%.
Both wirehouse executives and industry consultants view them as game-changing upgrades of the client experience and are enthusiastic about the simplicity of an omnibus account that offers “best of breed” products from across the investment spectrum. Best of all, UMAs enable investors to receive the customized tax treatment that Separately Managed Accounts, or SMAs, promised but so often failed to deliver.
UMAs typically contain SMAs, mutual funds and ETFs in one account. Overlay managers can screen accounts for duplicate stock positions. Accounts can then be managed in a more tax-efficient manner.
Sometimes, managers with contrasting styles have reason to own the same stock. Suppose that a growth and a value manager both own the same stock, and one manager holds a losing position. The overlay manager can then sell that position for tax-loss harvesting purposes.
Many advisors who use only SMAs simply never provide their clients with this important service.
At least one major wirehouse is actively urging its advisors to use the UMA as opposed to the SMA for new fee-based dollars because of these “next generation” features. UMA adoption by advisors however, hasn’t been as rapid as was first predicted by industry pundits. That’s because advisors remain a fiercely independent, skeptical lot.
Many advisors erroneously view UMAs as a cookie-cutter firm-based product of dubious portability. They mistakenly view them as today’s version of the proprietary mutual fund. UMA holdings, in fact, are portable, as I've written about before.
More fundamentally, many advisors figure that if the firm is urging them to do UMAs, there must be a catch. These advisors are cautiously dabbling with UMAs, trying them out with select and often smaller accounts.
When advisors who use UMAs consider changing firms, they must carefully scrutinize the offering of a prospective firm. Not all UMAs are created equal, and in-depth advisor due diligence is imperative.
Two of the major wirehouses offer well-crafted, robust programs. A third has what consultants call a “multi-style account.” The menu is limited to SMAs only. The offering is a good one, but it is not a true UMA.