Recently, I have been trying to catch up on goings on in our industry and I ran across the concept of a Unified Managed Account.  It’s an interesting concept really, however, I see it as a marketing gimmick. If this one slipped under your radar don’t be alarmed.  It’s a small ($78 billion) but rapidly growing segment of the management market.

I started hearing about UMA’s about 5 years ago and the buzz keeps growing. Basically, a UMA is a SMA or Wrap program with more convenience. The idea is to allow multiple managers with multiple disciplines access to a single account. It’s not so much a new alternative investment, as it is a wrapper for existing investments.

The underlying premise is that you, the advisor, can make better decisions about planning if all the managers are playing in the same sandbox.  Tax decisions become easier and you can hopefully avoid costly tax problems like constructive or wash sales. If implemented properly, you can spend more time doing what you do best — building your business, handling the big planning picture and talking clients through market movements.

The main problem I see is that UMA’s remove the advisor from one level of client touch.  The data.  Most advisors probably dislike having to run a back-office, however, it’s a necessary evil. It allows the advisor to control the numbers he provides to his clients.

Cleaning the data and producing quarterly performance reports reassures the client that the advisor is in touch with what’s going on, and providing a valuable service. (Producing pretty graphs and charts.)  If a third party starts producing the pretty reports and branding them with their logo, there is a risk that the client will build trust in the UMA provider not the advisor.

This isn’t really a new concept.  Many years ago I developed a rebalancing program for a shop that wanted to do something similar to UMA’s. The goal was to use multiple models in one account. The advisor would say this account needs to be 30% aggressive, 40% moderate and 30% conservative.  Then the advisor would pick from a list of the firm models to create the mix.  The whole thing happened in one account, re-balancing was done first at the mix level, then the model level.

The advantages to this style were the same as UMA’s.  The firm gained the ability to intelligently tax-manage the account, minimize segment risk and reduce the confusion for the client.  An advisor could have custom allocations for each client and the firm would still gain economies of scale for managing allocations.

This is why I think the UMA is a marketing gimmick.  I know it will upset many people but really we have had this for years.  When we wrote Techfi Trader, it had this capability.  When Matt did a post about iRebal earlier this year, he mentioned that it had this capability too.

If you use SMA’s, you should check out the UMA concept and really consider adopting it.  If on the other hand, your firm designs it’s own model portfolios, you might instead research how you can replicate the functionality for your clients, so you don’t have to farm it out.