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Training Critical to UMA Growth


NEW YORK-As the unified managed account industry continues to grow, money managers must train financial advisers adequately to sell their products. As companies enter the UMA business, their most important task will be to continually educate, train and support advisers, speakers said during Financial Research Associates' Unified Managed Accounts conference here last week.

"If the marketplace is confused, the investor will be confused also," said John Wren, national product manager at Lockwood Advisors of Malvern, Pa., a subsidiary of The Bank of New York.

A UMA is a single account with an overlay manager. It is asset-allocation driven and combines investment vehicles such as exchange-traded funds, mutual funds, separately managed accounts and alternative investments, in one portfolio. The asset allocation is fulfilled using investment sleeves, which are usually connected to asset classes, indexes and styles. The UMA offers automatic rebalancing, product-neutral fees and possible tax efficiencies.

Today, Baby Boomers are the largest group looking for help from a financial adviser, so naturally they are a target audience for UMAs. This is a change, because, for the most part, they have been a do-it-yourself generation, Wren said.

With 77 million Baby Boomers about to begin retiring, the challenge of providing them with adequate retirement income is tremendous for the investment management industry-and the solution could be UMAs, speakers said. "It is not necessarily that retirement is changing, but it is the sheer size and magnitude of the Baby Boomers that is driving the market," Wren said.

High-net-worth Baby Boomers are looking for a multi-product solution. They need cash flow to support and maintain their lifestyle, growth of assets for longevity, legacy estate funding and money for healthcare. UMAs offer a one-stop shopping solution, as they are simple, secure, have consolidated reports and provide high-quality service and advice, speakers said.

There are two approaches that financial advisers can take to implement and deliver a UMA, which is either an "open architecture" method whereby they handle all aspects of a client's UMA portfolio, or a "discretionary" method, whereby they hand it off to an investment firm. There is a need for both types in the marketplace as advisers take different approaches to their business, Wren noted.

Firms need to help advisers understand the UMA practice, and advisers need to assess what they want their role to be in the process. With the discretionary model, advisers need to realize that they can still work with a client, even though they've outsourced portfolio management. There has been some resistance to this version of a UMA from seasoned advisers used to a certain way of doing business, but for the most part, advisers are embracing the offering, Wren said. The main advantage of the discretionary approach is that it allows the adviser to focus on gathering and retaining assets rather than managing money, Wren added. Furthermore, advisers who are not familiar with UMAs may be better suited to using a discretionary model, he said.

Additionally, there are benefits to the client when advisers use the discretionary approach. Clients are able to receive professional money management help and an integrated investment strategy.

Many times an investor's portfolio becomes decentralized. Financial advisers often look at their client's investment statements, and realize that the right hand doesn't know what the left hand is doing, Wren said. The UMA offers all the diversification the client was originally seeking and also simplifies all investments into a single account instead of using multiple investment vehicles.

Firms might also use UMAs to retain and attract advisers. "Oftentimes a UMA platform is a key decision for advisers when they switch firms, as it is hard to use separate platforms for clients' different investments," said David Haywood, vice president and senior consultant at Financial Research Corp. UMAs will help keep high-net-worth advisors and lead to cross-selling opportunities, he noted.

Technology also plays a key part in helping advisers open a UMA account for a client. UMA technology should be geared toward creating an end-to-end process for advisers, from account opening to automated paperwork, said Bala Subramanian vice president of technology investment services at Standard & Poor's of New York.

Advisers want simple tools to use. The easier it is for an adviser to open a new UMA account for a client, the more they will embrace them and UMA assets will grow, said Joseph Mrak, vice president of product development at CheckFree of Atlanta.

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