What is a UMA?

Unified Managed Account

A Unified Managed Account (UMA) is a type of investment account that allows an investor to aggregate assets but separately manage different “sleeves,” or asset groupings. Let’s dig into what UMAs are and how investment advisors can best utilize them.

Table of Contents:

Introduction: UMA 101
What is a UMA?
How do UMA accounts work?
Who should use UMAs?
What are the benefits to using a UMA?
Why use a TAMP to access UMAs?

Introduction: UMA 101

Before digging into what a Unified Managed Account can do for your clients, let’s dive into the most essential question: What is a Unified Managed Account?
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Whether you’re just starting to introduce UMAs into your investors’ portfolios, or you’re simply looking for a new way to manage UMAs, it’s worth revisiting the UMA account landscape, UMA account platforms, and how advisors and clients alike can benefit from them.

From improved portfolio performance optimization to enhanced transparency and cost-efficiency, UMAs present a compelling solution. They streamline multiple accounts into a single platform, potentially reducing complexity.

If you’re new to UMAs or just want a refresher, this guide will walk you through a high-level overview.

What is a UMA?

It may be helpful to think of Unified Managed Accounts like a little brother to SMAs, shorthand for Separately Managed Accounts. Let’s dive into the history of UMAs and UMA sleeves.

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A Unified Managed Account is a type of investment account that combines different types of assets—stocks, bonds, alternative investments, ETFs, mutual funds, and more—and strategies into one, easily managed account.

Becoming increasingly popular among high-net-worth (HNW) investors and their financial professionals, UMAs provide a simplified view into portfolio performance that takes into account investor goals, risk tolerance, and investment preferences. 

A History of UMAs

Originating in the 1990s as a solution to investors’ increasing desire to simplify portfolio management, UMAs provided the flexibility, customization and efficiency that other investment vehicles fell short of at the time. Their popularity was further spurred by advancements in technology that made accessing UMAs and consolidating workflows easier.

Since their birth, UMAs have grown in popularity, especially among HNW investors. In fact, a Cerulli study found that UMAs have recorded 34% growth over a three-year time span and now represent 22% of managed account assets. The same study found that UMA account assets were only 4.1% in 2008—showing just how fast demand for this type of investment has grown. 

UMAs vs. SMAs

UMAs are the little brother to SMAs—or Separately Managed Accounts. Introduced in the 1970s, SMAs emerged to satisfy demand for more highly-tailored investment portfolios. But unlike UMAs, which combine various asset types and strategies into one account, SMAs focus on bringing individual securities—like stocks or bonds—into one account with one strategy focus. They are also structured in segregated accounts.

UMAs take portfolio construction a step past SMAs, offering an advanced ability to hold multiple types of investments under a single account. In fact, UMAs can hold SMAs as an investment itself. 

UMA Sleeves

You may hear the term “sleeve” in reference to UMAs. UMA sleeves let advisors organize investments according to different investment strategies or asset classes.

GeoWealth’s President & COO, Jack Hannah, illustrates the benefits of sleeving through a powerful example:

“Imagine a client has a home office model in a portion of their account. You, as the advisor, recommend investing a portion of their account into a third-party managed model available on the GeoWealth platform. This particular client also has legacy positions they never want to sell, and they prefer to keep $100K in cash (no matter what cash a manager might have in their model). Sleeving allows all these different pieces to interact inside a single registration. Using the GeoWealth platform, you can easily see these accounts broken out as though they’re separate.”

This organization is usually based on the investor’s goals, risk tolerance, and overall investment strategy, granting better structure, flexibility and transparency, empowering investors with the knowledge of how their portfolios are diversified within a unified account structure.

How Do UMA Accounts Work?

By bringing different investable assets under one managed account, investment advisors and other financial professionals are able to more quickly view the performance of the underlying components and bill on the components individually.  

As we’ve established, UMAs enable investors to bring together different investment assets under one, managed account to more easily diversify, customize their portfolio, and allocate assets efficiently.

And as their name states, Unified Managed Accounts are managed accounts that financial advisors or other financial professionals are responsible for overseeing. This is a distinct advantage for investors who wish to invest confidently by leveraging an expert’s knowledge to maximize portfolio performance and returns.

In regard to UMA management, financial advisors are responsible for assessing the client’s financial goals, constructing the portfolio based on risk tolerance and objectives, and customizing the sleeves to take into account their investment preferences. Financial advisors overseeing UMAs are also responsible for rebalancing the portfolio to ensure the investor’s desired asset allocation is upheld. 

4 Steps to Efficient UMA Account Planning

There are four main steps financial advisors and other financial professionals should follow when conducting UMA account planning:

1. Consider each investor’s unique financial situation: Evaluating risk tolerance is a critical first step in portfolio construction to ensure investments are aligned with the investor’s preference for risk. Other factors that impact UMA account planning include the investor’s goals and tax considerations.

Additionally, decide whether the investor wants to choose specific investments, or avoid some altogether, as they may be predisposed to certain assets or strategies.

2. Select investments, managers & strategies: Heavy research and due diligence is the cornerstone of any informed investment selection process. This step helps advisors make sure their selections are suitable for the investor.

But there are tools available to make this step in the process much easier; that’s where a TAMP that supports UMAs can come into play. But we’ll get to that later.

3. Monitor performance & rebalance regularly: Like other investments, UMAs require regular performance monitoring and frequent rebalancing to maintain an investor’s preferred level of risk in their portfolio. Keeping an eye on portfolio performance is much easier with UMAs—especially those managed through a TAMP.

4. Consider tax management strategies: Because UMAs tend to simplify the investment management process, year-end tax reporting burdens are similarly lessened. However, financial advisors should always consider strategies such as tax-loss harvesting and advise clients on the tax implications around distributions, withdrawals, and capital gains. They should also work closely with the client’s accountant on broader tax planning strategies.

Advisors who wish to take advantage of UMAs have a number of options available to them in terms of UMA platform technology and integrations. As mentioned above, they can be accessed through some TAMPs. TAMPs provide financial advisors with the tools, technology, and infrastructure needed to efficiently manage UMAs, and they may offer access to a more diverse range of investment strategies and managers.

Who Should Use UMAs?

A Unified Managed Account holds potential benefit for a range of RIA types and end-client types. However, the greatest value is often found for High Net Worth (HNW) clients with complex financial pictures.

While anyone seeking greater customization, diversification, and professional management could benefit from introducing UMAs into their investment portfolio, UMAs are most accessible to HNW investors, as account minimums can exceed $500,000.

Unified accounts tend to support clients who have complex financial lives, as the simplified structure makes management of complicated financial needs much easier. More often than not, it’s the same HNW or ultra-high-net-worth (UHNW) audience that can benefit from this structure.

Financial advisors serving this HNW audience could benefit from the efficiency and scalability provided by UMAs—especially when accessed through an innovative technology platform.

What are the Benefits to Using a UMA?

Let’s now examine the benefits of using Unified Managed Accounts first from the perspective of end-clients and investors, and then from the perspective of investment advisors and other financial professionals.

Whether you’re an investor seeking diversification and simplified performance views, or an advisor seeking streamlined operations and efficiency, there are a number of benefits to leveraging UMAs in a portfolio.

Benefits for Investors

UMAs provide investors with a number of benefits, including:

+ Broad Diversification: They allow investors take advantage of a wide array of asset classes and strategies, which can lead to reduced risk and positively impact overall portfolio performance.

+ Customization: Due to the flexible nature of UMAs, personalizing which investment strategies and investments you incorporate makes it easier to address risk tolerance and long-term financial goals.

+ Simplified Management: They inherently simplify the investment management experience, bringing multiple accounts under one roof—making it easier to view investment performance reports.

+ Professionally Managed Solution: Many investors prefer professionally managed account solutions to feel confident in investments, especially if they don’t have the expertise needed to manage it themselves.

UMA Benefits for Financial Advisors

Financial advisors can also benefit from incorporating UMAs into client portfolios more regularly, as these investments can help them achieve:

+ Flexibility: They let financial advisors operate with a greater degree of flexibility than traditionally managed accounts, or even SMAs. The ability to incorporate multiple asset types, strategies and managers into different sleeves means advisors can do more to meet investors’ unique needs.

+ Increased Efficiency: Since UMAs bring multiple accounts together as one, advisors can operate more efficiently. This gives advisors more time to spend on revenue-generating and relationship-building activities.

+ A High Degree of Scalability: Because of the increased operational efficiency gained through UMAs, advisors may be able to more easily scale their practices.

While UMAs provide substantial benefits, it’s helpful to understand the full picture. Review the chart below weighing the pros vs. cons of investing via this account structure.

An Overview of Unified Managed Account – Pros vs. Cons:

BENEFITS:

LIMITATIONS:

BENEFITS:

High Level of Portfolio Customization

LIMITATIONS:

Higher Fees

BENEFITS:

Ability to Broadly Diversify

LIMITATIONS:

Higher Minimum Investment Requirements

BENEFITS:

Leverage Knowledge of Professionals

LIMITATIONS:

Complicated Self-Directed Investment Decisions

BENEFITS:

Rebalancing Ensures Asset Allocation Adherence

LIMITATIONS:

Financial Professionals Must Manage UMA on Behalf of Investor

BENEFITS:

Simplified Reporting & Ongoing Performance Monitoring

LIMITATIONS:

High Level of Customization Can Lead to Limited Control

Why Use a TAMP to Access UMAs?

Using a platform like a TAMP can make investing in and managing UMAs even simpler. But first, let’s review what a TAMP is.

TAMPs are designed to eliminate cumbersome administrative tasks from an advisor’s plate by handling aggregation, reconciliation, reporting, and billing as well as simplifying complex workflows. But modern TAMPs go beyond investment management to serve as an extension of an advisor’s office—helping them reclaim time lost to tedious work that comes with manually managing trades.

Unfortunately, not all TAMPs support UMAs. Selecting a TAMP that does cannot be overlooked if you’re an advisor looking to take advantage of the ease and simplicity of a TAMP.

Thankfully, there are sophisticated TAMPs, like GeoWealth, that support UMA flexibility and allow multiple model portfolios in the same custodial account.

And, if you are in the market for a modern TAMP that supports UMA investing capabilities, consider these additional red flags to take into account when choosing a TAMP.

Leveraging GeoWealth for Your UMA Management

GeoWealth’s leading financial technology and TAMP combines a comprehensive and fully-integrated platform with best-in-class portfolio solutions.

Advisors leveraging GeoWealth’s proprietary platform have the flexibility to build their own models, select third-party model portfolios, or combine the two via custom UMAs. Plus, GeoWealth empowers advisors to customize client portfolios even further by allowing SMAs and single asset class or “sleeve-level” strategies to be used as building blocks in UMA allocations.

If you’d like to learn more about how GeoWealth can help transform your business and scale faster, reach out to our team. We’re happy to consult with you and answer any questions you may have about outsourcing your technology, investment management, or back office.

The information contained herein does not constitute investment advice or a solicitation to buy or sell any security, investment or product. You should not construe any of this information to be legal, tax, investment, financial, or other advice. This article is for dissemination of general information only. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Investments are not guaranteed and are subject to investment risk, including possible loss of the principal amount invested. Past performance is no guarantee of future results.

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If you’d like to learn more about how GeoWealth can help transform your business and enable you scale faster, reach out to our team. We’re happy to consult with you on your particular situation and answer any questions you may have about outsourcing your technology, investment management, or back office.

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