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New SMA Breed to Adopt Household' Approach: MMI Message Shifts Toward Unified Managed Account

In an effort to clear up confusion over a new breed of separately managed accounts, the Money Management Institute held a media briefing last week to unveil a narrower definition of the product and discuss its prospects for growth among the nation's high-net-worth.

Responding to feedback from various corners of the financial services industry that unified managed accounts (UMAs) were poorly defined, the trade association explained what to expect from the latest permutation of the SMA and the role it will play in capturing Baby Boomer assets.

"We've been hearing for the last two or three years that the UMA was really not defined very well. People were using it to describe data aggregation techniques, mutual fund wrap programs...we thought we really had to define what it is," said Len Reinhart, CEO of Lockwood Financial, a wealth management division of The Bank of New York, on a conference call with reporters.

On a very base level, Reinhart defined a UMA as "delivering multiple managed financial products to the client on one platform." Financial advisers have been trying to do this on their own for the past 10 years, Reinhart admitted, by cobbling together different financial products and reporting systems to show aggregated performance and buying products from multiple vendors in hopes of combining them.

"But it's been very cumbersome," Reinhart said. "There are compliance issues on the pricing for the different products and certainly a lot of data aggregation issues for the client, having the money scattered all over."

Reinhart believes that the UMA is poised to capture a glut of new assets as Baby Boomers undergo "a major sea change" in terms of their investment goals. After spending the past 30 years in the accumulation phase, Boomers are now looking to draw down their wealth and make sure they have enough money to live comfortably in retirement.

However, a majority of them don't have defined benefit pension plans like their parents did. Instead, they have to build and manage their own pension plan. Given that reality, MMI is touting the UMA structured platform and the UMA delivery process, as a key element for high-net-worth individuals managing their own retirement dollars.

Reinhart told reporters that the UMA simplifies the reporting and account administration process, enabling advisers to focus on their core competencies. "It really streamlines the systems and processes for the financial adviser and allows them to spend more of their time on advice and working with their clients rather than trying to cobble together the operational support and the reporting formats for the client," he said. "It simplifies the account administration dramatically, allowing you to use one proposal system to set up multiple product solutions."

Additionally, Reinhart noted that the UMA allows advisers to aggregate the delivery of multiple financial products and systematizes the rebalancing between those products as time goes on and the investor's financial situation changes. "We think it's a major turning point for the financial adviser if the major firms start to use this type of a platform. [The UMA] will allow the adviser to really focus on the client needs rather than operations as that burden is taken over by the sponsoring firms," he said.

Perhaps the most interesting development gleaned from the conference call was that SMAs are becoming a smaller slice of what MMI is trying to accomplish, as it plans to shift more toward the UMA and what it is calling the Unified Managed Household (UMH). While the SMA is certainly the core financial product due to its fully disclosed fees and flexibility as a non-pooled vehicle, the MMI is now expanding its charter to broaden the consultative process to include the delivery of other managed products.

"It would be foolish for us to think that SMAs are the only answer for a client," Reinhart said. "Just like everybody else, we're adapting."

Essentially, the institute has realized that in order to serve the Boomer market, it must deliver to the client an array of different asset classes. The products that will fill these different sleeves will include SMAs, mutual funds, individual securities, ETFs, hedge funds and commodity funds, just to name a few.

One of the benefits of the so-called "household" approach is that it will allow for multiple account registrations. Most high-net-worth individuals have multiple account registrations for different purposes. For example, they can have a taxable account and an IRA, but they can't put them into one account registration.