Initially, unified managed accounts (UMAs) were mainly used by brokerage firms as a technology platform to house multiple third-party managers in client accounts. During the past decade, however, UMAs have caught on with wealth managers and registered investment advisers (RIAs) looking to streamline the reporting and custody demands from customers and regulators.
“The interesting thing to us is that if you went back five years, the UMA still had very limited use in RIA channels; that’s now changed drastically,” says Lee Chertavian, CEO of suburban Dallas-headquartered Placemark Investments. “RIAs are increasingly adopting it as a way to rationalize their operations process.” According to Chertavian, independent registered investment advisers are using UMA platforms as an outsourced back office that allows them to hold assets — sometimes across multiple custodial platforms — and integrate third-party client reporting and risk management software. Placemark has more than 300 RIA firms and ten full-service brokerages, with a combined $15 billion in assets, using its UMA platform.
Outsourcing these client account functions to UMA platforms can be liberating. “First and foremost, the simplicity of trading multiple strategies run by multiple managers in a single client account is amazing,” says J. Timothy Dyer, managing director at Sage Capital Advisors, a wealth management firm in La Jolla, California. “The platforms handle all the trading and trade sizing; the reporting is excellent; and at a fee of only 10 basis points, the system provides massive economies of scale.”
For asset managers handling separately managed accounts, working with UMA providers can open up a new distribution channel. Essentially, a wealth manager contracts with a UMA provider who acts as the portfolio manager overseeing assets. Asset management firms that provide portfolios on the platform are then engaged as subadvisers, and the wealth managers using the platform can allocate across any of the offered portfolios with the ease of a single provider. “It’s really a ‘drag and drop’ solution for managing client accounts,” says Michael Apker, managing director of the Advisor Suite software platform offered by Chicago–headquartered wealth management technology firm Envestnet.
Whereas being on a platform with deep distribution into RIA and broker-dealer channels makes it that much easier to bring on new clients, it can also mean having to work harder to get attention. “Managers need to understand that simply having a successful portfolio performance record on a UMA platform doesn’t automatically lead to gathering assets,” says Christian Wagner, founder, CEO and chief investment officer of Wilmington, Delaware–based Longview Capital Management, which oversees portfolio strategies available on several UMA platforms. “It’s important to understand which providers will work with them to get in front of advisers.” The numbers hint at just how difficult it can be for RIAs using UMAs to stick out in the crowd. Placemark has more than 2,100 portfolio options provided by 600 management firms. On its platform, Envestnet has more than 30,000 advisers with more than $175 billion in assets under management or administration — and an additional $350 billion managed with its technology under licensing contracts.
When assets do arrive, the arm’s-length nature of the process can make it difficult to manage the adviser-client relationship. UMA providers are developing ways to address this, however. For example, Envestnet’s Apker says that his company is adding new interface functionalities. “No adviser is comfortable allocating to a manager if they don’t understand why specific positions are in the account,” he says. “Our UMA offering has evolved to allow ever increasing manager-to-adviser communication.” Envestnet has also added a tool for hosting investor calls and distributing written reports that allows managers to share investment perspectives directly with their adviser-client base.
The uptake of UMAs among independent wealth managers has coincided with the growing popularity of exchange-traded funds. For long-term portfolio approaches and tactical allocations, a UMA platform can easily handle the trading requirements for liquid ETFs and equities across multiple brokerage and bank platforms. More complex portfolio strategies, such as those that require active trading or marginable products like options or futures, remain elusive for the leading providers, however. Furthermore, allocations to nonlisted assets such as private companies and hedge fund firms require manual data entry at the adviser level. According to Placemark’s Chertavian, the demand among advisers for alternatives remains modest. “The day will come, but for now the demand really isn’t there yet,” he says.
Get more on registered investment advisers.
