As the financial lives of high-net-worth (HNW) clients become increasingly complex, so do their expectations regarding portfolio customization, tax efficiency, and transparency. Advisors are increasingly turning to modern investment solutions that provide both personalization and operational scale.
What is an SMA?
Separately Managed Accounts (SMAs) are professionally managed portfolios in which individual investors directly own the underlying securities, enabling tailored investment strategies, tax-aware management, and enhanced transparency. Although separately managed accounts (SMAs) have existed for years, there has been a renewed interest in them for several reasons. 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 (such as mutual funds) in that each portfolio is unique to a single brokerage account and the investor directly owns all the underlying securities. This direct security ownership provides several potential benefits, including the ability to manage unique tax consequences, customize loss harvesting activities to offset capital gains, tailor specific stock restrictions to reflect an individual’s needs, and increase transparency into specific holdings and trading activities. Additionally, 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.
What is a UMA?
Unified Managed Accounts (UMAs) take the SMA concept further by combining multiple SMAs, mutual funds, ETFs, and individual securities into a single brokerage account with centralized administration.
With UMA assets under management projected to reach $3.7 trillion by 2026, according to Cerulli Associates,1 it’s clear this structure is resonating with advisors and investors alike. In the sections that follow, we’ll explore why demand for SMAs and UMAs continues to grow and how these solutions can help you deliver differentiated value to your most sophisticated clients.
UMAs vs SMAs
There are a few key differences between SMAs and UMAs:
- Transparency: UMAs offer a consolidated, real-time view of all assets in one account, while SMAs offer transparency into a single separately managed portfolio at a time.
- Ownership: UMAs offer indirect ownership of a broad set of strategies under one account structure, while SMAs offer direct ownership of the underlying securities in each individual account.
- Minimum investment: UMAs often have a lower overall minimum than opening multiple SMAs, while SMAs generally require a higher account minimum per strategy.
- Operational burden: UMAs offer streamlined administration — one account, one statement, one tax report — while SMAs require separate paperwork, performance reports, and tax forms for each manager or strategy.
- Tax implications: UMAs offer coordinated tax management and more efficient tax-loss harvesting across all strategies, while SMAs manage tax implications separately at the individual account level.
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 must negotiate individually with each manager to determine a management fee, coordinate the signing of separate manager agreements 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 financial advisors use UMAs
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 make it possible to integrate multiple SMAs, mutual funds, ETFs, and individual securities into a single brokerage account to help increase advisors’ efficiency and potentially drive business growth. 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 technology allows 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 participating SMA managers, eliminating 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 associated with replacing a manager, as additional client signatures for the new manager are often not required.
The Envestnet UMA technology 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 managing 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. Most importantly, you can offer a level of customization that is increasingly crucial in differentiating your capabilities from the competition. The UMA enables the coordination of client-specific strategies, including tax and impact overlays, index replication, tax loss harvesting, and restrictions, to drive efficiency and potentially business growth.
The UMA structure can be further enhanced with overlay services that address the sophisticated requirements of clients. Overlay management automatically analyzes any portfolio adjustments or manager trades to ensure the overall portfolio remains in balance relative to your specifications regarding strategy weighting, overall risk exposure, and active tax loss harvesting over time. Overlay portfolio management can help ensure your client’s strategies are implemented and coordinated successfully and continuously.
Meet the needs of your most valuable clients with UMAs
For financial advisors serving high-net-worth clients, unified managed accounts may offer a compelling solution that aligns with their demand for customization, transparency, and efficiency. By consolidating multiple strategies into a single account with streamlined operational oversight, UMAs help advisors deliver tailored, tax-aware investment management while reducing administrative burdens.
Through Envestnet’s UMA technology, advisors can consolidate multiple portfolios from various managers into a single account, helping to meet the unique needs of individual investors. The technology provides access to over 1,700 third-party separately managed accounts (SMAs) that are integrated with UMA administration. Advisors can centralize management, automate administrative tasks, and streamline trading to save time and boost efficiency. Envestnet UMA also supports meeting preparation with automated proposal generation, investment research, and analysis tools. Portfolios can be further customized with features like tax overlay, direct indexing strategies, and more. Additionally, advisors may benefit from potential cost savings through negotiated pricing with asset managers.
This enhanced customization, combined with professional active management and overlay services, allows you to differentiate your practice and meet the complex needs of discerning clients seeking both personalized solutions and seamless investment experiences.
Visit The Envestnet RIA Marketplace to access a low-cost managed account solution or learn more about UMAs.
