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Unified Managed Household a New Take on SMAs, UMAs


The investment management industry is constantly developing new products and chasing new ideas to attract assets, and separately managed accounts have been no different. First came SMAs, and then, multi-style accounts followed by unified managed accounts.

Now, UMAs are progressing toward the unified managed household (UMH).

"The UMH is basically an extension of the UMA, but a much more complicated process," said Len Reinhart, chairman and CEO of Lockwood Financial of Malvern, Pa., and chairman of the board of governors of the Money Management Institute. The UMH is gaining momentum in the industry, but it is not quite there yet, experts said.

The UMH offers many advantages. For one, the client experience is simplified, with multiple accounts consolidated on one platform. Most high-net-worth investors have multiple account registrations for different purposes, such as an IRA and a taxable account, but cannot merge them into one account registration.

UMHs also offer diversification with some tax considerations. Additionally, they provide an opportunity to moderate volatility and risk by utilizing complementary asset classes, said Vincent Lepore, vice president and product manager of separately managed and unified managed accounts at HSBC Investments of New York, at a Financial Research Associates Unified Managed Account conference earlier this month. UMHs also offer automatic rebalancing and product-neutral fees.

Currently, investment firms are targeting UMHs to Baby Boomers and high-net-worth investors, but they may migrate to middle-income investors in the future, said Steve Deutsch, director of the separate accounts business at Morningstar of Chicago.

The platform is very conducive to Baby Boomers' needs, who are looking for a retirement solution, Reinhart said. It offers a mini-retirement plan that helps retirees make their money last for the rest of their lives, he said. Seventy-seven million Baby Boomers are about to begin to retire, and many are seeking help from a financial adviser on how to plan for retirement.

However, because UMHs diversify risk and have low equity exposure, they may not be as suited for a 40-year-old looking to accumulate wealth, experts said, for investors will never hit any home runs with the platform.

The easiest way to tell if someone is ready for a UMH or a UMA is when an investor stops talking about selecting the best stocks and bonds and starts asking whether they will have enough retirement money to live the rest of their life, Reinhart said. Typically, a UMH or UMA investor is around 60 years old.

More firms will continue to get into the UMH business, but "it's a ways off," said Jeffrey Strange, a senior analyst with Cerulli in Boston. A lot of firms are trying to do something similar, but it is not systematic yet, he said.

Firms are lacking the key features needed for the platform. For one, the technology supporting UMHs is very complicated. The UMH idea is there, but the technology has not caught up to it yet, Reinhart said. Many firms say they offer a UMA, but in actuality it is not a true UMA, he said. Thus, Reinhart and others expect large providers and brokerages to purse the business.

Those firms that offer robust, streamlined UMA and UMH platforms will be able to attract financial advisers serving high-net-worth clients, Deutsch said. Companies that have a more basic client base, such as a small bank that focuses on advising clients on savings and home equity products will most likely not launch a UMA, Strange added.

As the technology supporting UMHs advances and advisers get a comprehensive picture of a client's investment holdings, they will be able to serve investors better, Strange said. Advisers will meet with clients more often and find investments that better suit their needs, he said. In the past, advisers used to put clients in vehicle-defined programs, but going forward they will be more flexible about finding solutions.

UMHs will become popular in the industry if investors like the advantages they gain from the platform. "Investors will need to see more than just the convenience of all their investment accounts in one UMH package. They will look for higher returns, less volatility and cost savings," Deutsch said. If these things don't fall into place for investors, they won't ascribe much value to the platform and move on, he added.

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