As advisors think about the sophisticated investment needs of their high-net-worth clients, more and more are looking for customization and transparency.
With these needs in mind and Envestnet | Tamarac’s commitment to equip you with the innovative tools you need to compete and thrive in advancing your client’s financial wellness, we’re excited to introduce the Tamarac Unified Managed Account Solution, offered through the Envestnet platform. With this new offering, we bring additional account-level customization by helping you tailor investments to specific client circumstances and needs.
In fact, the use of Unified Managed Accounts (UMAs) nearly doubled from 2017 to 2019, and over the same period, the use of separately managed account (SMA) strategies in a UMA format increased by over 125%, according to data from Cerulli.1 This blog post explores the reasons behind these growth trends and the benefits SMAs and UMAs can provide to you and your clients.
How SMAs work — and what challenges advisors
While SMAs have been around for years, there is renewed interest. Here are some of the reasons why:
- As an investment vehicle managed by a professional asset manager who determines the holdings and trading activity for each investor, SMAs differ from pooled vehicles (like mutual funds) in that each portfolio is unique to a single brokerage account and the investor directly owns all of the underlying securities.
- Direct security ownership provides several potential benefits such as the ability to manage unique tax consequences, customize loss harvesting activities to offset capital gains, tailor specific stock restrictions to reflect an individual’s SRI principles, and increase transparency into specific holdings and trading activity.
- SMAs bring both active professional management and investment customization to a broader array of investors and often come with lower fees than their mutual fund counterparts.
The broad adoption of SMAs by advisors has been somewhat hampered by the operational challenges associated with administering them at scale, especially if you employ more than one SMA strategy. Traditionally, each SMA manager requires a separate brokerage account, and each manager has their own end-client agreement.
When employing multiple SMA strategies, you need to negotiate individually with each manager to determine a management fee, coordinate the signing of each separate manager agreement with your client, and establish each account with the custodian. The additional brokerage accounts also increase the volume of tax documents, trade confirms, and proxy notices sent to your client. And because each of these accounts is managed separately, any coordination of trading across managers to rebalance, harvest losses, avoid wash sales, and/or manage restrictions needs to be manually coordinated with each SMA manager.
UMAs are designed to alleviate these challenges and meet your clients’ specific investment needs.
Three reasons why UMAs makes sense
UMAs are managed investment accounts that have developed out of separate accounts. While separate accounts hold the securities associated with a single investment manager or style managed for a client, UMAs typically hold multiple separate accounts, as well as other investment products such as mutual funds and ETFs.
UMAs automate activities such as rebalancing, cash flow management, and other services that are typically handled manually by advisors or institutions. And UMAs eliminate the need to house each SMA in a separate brokerage account by combining all the assets into one account with a single registration.
Here are the top three reasons to consider turning to UMAs:
1. Consolidation to improve efficiency
UMAs offer ways to consolidate and streamline asset management, especially helpful if you intend to use several SMA strategies. By consolidating holdings, including mutual funds, ETFs, and individual securities, UMAs can streamline paperwork, simplify fees, and allow for more sophisticated tax management.
2. Less operational responsibilities
UMA platforms allow you to deliver and coordinate the SMA strategies you choose to deploy at scale. By combining multiple SMAs in a single account, you can significantly reduce the number of custodial accounts, corresponding statements, and tax documents.
In addition, there is typically a single program agreement that covers access to all the participating SMA managers, negating the need for you to coordinate the signing of multiple agreements for each manager as in a “dual contract” environment. This “single contract” environment reduces the challenges that come with replacing a manager, since additional client signatures for the new manager are often not required.
The UMA platform also manages individual account-level trading across multiple SMAs, including rebalancing, reconciliation, proxy vote support, corporate actions, and manager billing administration. Central coordination provides a single point of entry for you to direct activity across managers when it comes to cash flow management (raising or investing cash), tax-loss harvesting, and the management of security-level restrictions to avoid wash sales.
3. Increased customization and tailoring
With the ability to maintain all assets within a UMA environment, the investment experience is streamlined. You can manage to individual tax lots and tailor investment implementation to client concerns and circumstances. Most important, you can offer a level of customization that is increasingly crucial in differentiating your capabilities from the competition.
The UMA structure can be further enhanced with overlay services that address sophisticated client requirements. Overlay management automatically analyzes any portfolio adjustments or manager trades to ensure the overall portfolio remains in balance relative to your specifications concerning strategy weighting, overall risk exposure for any unintended factor biases, and active tax loss harvesting over time. Overlay portfolio management ensures your client’s strategies are implemented and coordinated successfully and continuously.
Download our one-pager to view our overview video to learn more about how the Tamarac Unified Managed Account Solution can improve your ability to meet sophisticated client needs. For more information, visit www.tamaracinc.com or give us a call at 866-525-8811.