UMA Success Relies on Advisers

Despite the effect of market turbulence, growth in UMA programs has outpaced growth in other managed account segments year-to-date, according to the latest The Cerulli Edge—Asset Management Edition. By year-end 2012, Cerulli predicts that UMA programs could garner as much as $324 billion in assets (up from $45 billion of assets as of the third quarter of this year). While UMAs were expected to push separately managed accounts more “downstream,’ or to accounts with less balances, so far they are mostly prevalent in fee-based, high-balance accounts.

Fee-based advisers are more likely than commissioned-based advisers to believe that the UMA will enable them to streamline their interactions with, and improve delivery of, investment management to clients, according to Cerulli. While fee-based advisers in the wirehouse channel are more familiar with UMAs, the firm found they are no more likely to utilize UMAs than fee-based advisers in independent or bank channels. Overall UMAs still are not used by many advisers: More than 30% of all advisers remain unfamiliar with the platform.

A reason why UMAs might not be gaining more traction could be because of portability concerns. Investment management expertise of an asset manager is accessed through a model portfolio—meaning, should the adviser choose to change firms, the client relationship might be less portable. Cerulli says advisers “may feel as though the sponsor, through the UMA, is furthering their ownership of the client relationship by taking control of the investment management.’

UMAs are hailed by some in the industry for their ability to solve the adviser’s need for flexibility and control, which are two important desires of fee-based advisers. Meanwhile, Cerulli research shows that fee-based advisers also want some degree of research assistance while having the freedom to build their own asset allocations. Cerulli contends that as more independent advisers become better educated about the UMA, and as UMA programs become more diversified in terms of vehicle type, advisers will increasingly look to them to simplify their investment management process, according to the report.