UMAs Are Popular But They Have Reporting Challenges

What is a unified managed account also known as a UMA?

In simple terms, it is a way to unify a client’s managed assets into one account.

Instead of having one account for a large-cap separately managed account (SMA), another one for a fixed income SMA, and a third one housing mutual funds and exchange-traded funds (ETFs), a client can have one UMA account comprised of three sleeves with each one dedicated to each of the aforementioned areas.

Over the years, the popularity of UMAs has continued to increase in the wealth management space.

According to the report “U.S. Managed Accounts 2023” by Cerulli Associates, “Unified managed accounts have exhibited the strongest growth rates over the last half-decade, growing assets at a 34 percent annualized clip over the last five years. Cerulli expects continued strong growth for UMA programs over the next four years.”

Cerulli researchers also expect the volume of assets covered by UMA programs to increase from $2.1 trillion at the end of 2022 to $3.7 trillion by the end of 2026.

Among all managed account segments, only the rep as-portfolio manager (Rep as PM) segment outpaces UMA in terms of assets under management (AUM). UMA’s popularity can be partially attributed to the rise in the use of model portfolios as UMA can be an effective way for a firm to deploy models.

Who is using UMAs and why?

UMAs are popular in the wealth management space because of the efficiency they provide by consolidating multiple accounts within a single vehicle. Also, the UMA structure allows for customization at the client level by providing overlay services that could lead to more personalized outcomes for clients.

Asset management, including investment selection, rebalancing, trading, and ongoing monitoring and analysis of investment performance is arguably more efficient within a UMA versus a traditional multi-account structure.

From a client’s perspective, in addition to less paperwork, there is the major benefit of simplified tax reporting and accounting. According to Cerulli, UMAs represent the largest program for Merrill Lynch, Fidelity Investments, and JPMorgan Chase as well as turnkey asset management program (TAMP) providers such as Envestnet.

As is the case with any investment program, the success of a UMA is dependent on the quality of the investment options available on the platform. A wealth management firm that looks to embark on developing a UMA program would be well-served to first ensure that it has a rock-solid due diligence process to enable the selection of investment products from top managers. Another factor in the success of a UMA program is a streamlined and seamless advisor experience with integrated tools like proposal capability, trading, rebalancing, ongoing monitoring, and reporting.

What are the challenges with ongoing reporting?

A consideration that can often go unchecked is the challenge of designing and implementing the right reporting infrastructure for a UMA strategy.

Most wealth management firms have adequate tools to support performance and other client reporting at the household/portfolio, investor, account, holding, and asset class levels when it comes to a traditional multi-account structure.

Yet UMA presents a unique challenge of having to report at the individual sleeve level. Wealth management firms should not underestimate the challenge of enhancing all required tools to support accurate reporting at the sleeve level. This primarily requires accurate sleeve tagging for each position and transition. This can be particularly challenging if the firm is relying on multiple vendors for trading, accounting, and performance reporting.

In addition, there could be challenges if the primary platform utilized for performance does not support sleeve performance. Most firms prefer to house all performance reporting on one platform. Some firms are certainly successfully executing that either by (i) feeding already calculated sleeve returns from the source into the performance reporting tool to display via its reports, or (ii) preferably feeding the sleeve input data such as transaction and position to sleeve tagging into the performance reporting tool to enable it to calculate sleeve returns.

However, other firms choose to forego the complexity of the work involved in such integration and the resulting benefits and, instead, keep the sleeve performance reporting on a separate platform from the primary reporting tool.

I hope this gives you a better understanding of why UMAs are popular and will continue to be so, as well as the reporting challenges with UMA vehicles.

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Investment advisory products and services are made available through Ameriprise Financial Services, LLC, a registered investment adviser. 

(The author Michael Margulis is vice president and officer, investment performance and analytics, for Ameriprise Financial, based in Minneapolis, Minn. Margulis manages the wealth management performance reporting team at Ameriprise Financial and is responsible for maintaining the infrastructure to support the presentation of investment performance to approximately 10,000 financial advisors and millions of mostly retail clients. Margulis will be a speaker at FTF’s Performance Measurement & Client Reporting event on Feb. 29, 2024, at Etc. Venues, 601 Lexington Ave. in New York City.)