UMA offerings are all the rage these days with executives at major wirehouses. These fee-based offerings allow advisors to build portfolios that contain separately managed accounts, mutual funds and ETFs, as well as stocks and bonds.
Comprehensive, holistic investment management is delivered to investors within the simplicity and convenience of one account and one statement. Advisors and their clients no longer need to wade through multiple account statements generated by a variety of outside managers.
Plus, wirehouse home-office staff can view a client’s investments holistically and handle the trading and operations in the UMA account. They also provide customers with overlay management and customized tax treatment. Compliance risk is minimized as brokers deposit client monies into model portfolios with well-defined guardrails.
Best of all, UMA accounts are more profitable to wirehouses and not as portable to rival firms. For example, fees to outside SMA managers typically range from 36 to 38 basis points in a stand-alone SMA account. Migrating an SMA manager to the firm’s UMA platform slashes those fees to around 25 basis points.
Since wirehouses handle the trading and operations, the firms feel that the reduction in fees is justified, because managers don’t need to have as many of their own traders or operations people. Many SMA managers just don’t buy that.
UMA assets are far stickier than assets held in conventional SMAs. Unless a manager is in the same sleeve of the new firm’s UMA, the portfolio can’t be directly moved over. The individual positions can be transferred but must be held outside the UMA account.
It’s a wirehouse executive’s dream come true: an account that is a better mousetrap for the client, more profitable to the firm and held in an account format that’s much trickier to transfer elsewhere.
The growth of UMAs has been impressive in the last two years.
Cerulli data show through the second quarter of 2012, $100 billion poured into UMAs in the last two years — a growth rate of 128.3%. SMA programs attracted only $80 billion in the same period, a growth rate of only 16.5% as those accounts started from a much higher base.
UMAs are relatively new products, and it’s not clear if this growth trajectory will continue. (UMAs had $181.5 billion in assets as of the second quarter of 2012 vs. $594.7 billion for SMAs.)
Yet, not everyone is part of the UMA fan club.
Many advisors feel that UMAs are the new generation of proprietary products and that they diminish an advisor’s unique value. Even if the advisor selects the managers in each asset-class sleeve, clients may still view their returns as having been generated by, for example, the Wirehouse A Moderate-Aggressive Portfolio.
If the advisor leaves Wirehouse A, can’t a new advisor offer clients the identical portfolio at perhaps a reduced rate? It would seem so, because UMA reporting primarily brands the firm — rather than the advisor. Similarly, some SMA managers privately gripe that that UMA reporting puts the firm front and center and relegates them to the back of the bus. Manager names are included on client statements, but at some firms this is done in an almost parenthetical manner.