Advisor Blog

Are UMAs - Unified Managed Accounts - the next "big thing" or just a new way for brokers to push products?  What is a UMA?  It's the evolution of the SMA - the Separately Managed Account.  SMAs are managed accounts that hold a portfolio of assets that are customized to fit a client's particular risk, tax, and other individual requirements.  They are appealing primarily because of the customized tax management that can be implemented.  A UMA is similar account that holds a variety of different types of assets - potentially including individual stocks, ETFs, mutual funds, even allocations to particular managers - all coordinated by the "overlay manager" that is responsible for the client-specific tax and risk customization mandates.  But, does this actually provide value to the client or is it just another way for "advisors" to sell something?

A customized tax management strategy can be very advantageous, particularly for high net worth clients.  But, an SMA or UMA structure is not necessary in order to implement effective tax management.  The whole idea of a UMA - or at least how it's being marketed - depends on the concept of active manager selection.  But, we know that active manager selection is a failed strategy and many academic studies show that it does not add to return.  Does packaging it in a new acronym change that?  Of course not.

Most of the supposed advantages offered by the UMA structure are already being realized in the familiar "tax hybrid" portfolio structure that many advisors (including us) already use.  For clients that require more advanced and flexible tax management, an SMA with low expenses and a structured exposure to asset classes is a much better solution.  For high net worth clients with this need, Dimensional Fund Advisors (DFA) offers separate account management.

The bottom line is that a UMA is just another way to package something expensive (active management) that doesn't work in a sophisticated sounding structure and sell it to clients that don't know any better.  So, even Oprah doesn't need an UMA  (note that this should not be construed as personalized investment advice for Oprah).