A new service will automate the process of producing one report of all a family's accounts.

    Just as you were about to get comfortable with the Unified Managed Account (UMA), along comes something new. Innovation in the separately managed account world is happening at a rapid pace these days. More innovation has occurred since the early 2000s (when the biggest debate was whether it was a product or a service) than in the 30 years since the SMA's initial dawning on the investment scene.
    The SMA was first viewed as a service, since it brought along with it a new investment process, investment management consulting. Other industry pundits insisted, however, that it was a product and should be sold as such. Today, the SMA has evolved as a "product or solution" within a larger consulting process. The groundwork was laid by multiple-style accounts (introduced first by Smith Barney through their MDA accounts) that packaged more than one manager in a single offering, with a manager overseeing the managers actually running the money and offering a single statement to the client.
    To avoid immediate confusion, the UMA actually is the newest SMA kid on the block, enabling clients to get a single statement across different products including SMAs, mutual funds and exchange-traded funds (ETFs), as well as multiple SMA managers. The original UMA idea was to eventually include insurance products and possibly hedge funds-any investment product or vehicle an investor might own within a portfolio.
But close on its heels is an extended version of the UMA, still in a conceptual stage, called the Unified Managed Household (UMH), which some say will eventually make the UMA obsolete. Projections for the UMH's actual existence range from one to 20 years, depending on the number of account locations involved. This article will examine the differences in the UMA and UMH, its challenges and advantages, and how it may change the face of the managed account industry going forward.

What A UMH Is And Isn't
    According to Placemark Investments in Dallas, one firm early on the UMH development scene, the UMH  "is a model for delivering integrated client or household-level investment solutions across multiple client accounts and registrations (e.g. table accounts, IRAs, brokerages, 401(K)s) even when held by different brokers, custodians and/or sponsors." Placemark executive vice president Randy Bullard prefers to think of the UMH as a framework for making investments match the way clients think. "Clients don't think about accounts. They think about college and retirement, and the way they service those needs and goals is by having assets in lots of different types of products and accounts. And, hopefully, those are all managed as a whole."
    The UMH is much more than a UMA, which has fallen rather short of the original vision of having any investment product folded into a single account with single statements and reporting across the scope of products in the portfolio. Currently, the most sophisticated UMAs are usually capable of folding only three investment products into the same account. Most often, these include any number of SMA managers plus mutual funds and ETFs. UMHs expand the UMA vision to include different registrations such as spousal accounts, IRAs and children's accounts. An overlay manager provides investment management integration and coordination.
    Regardless of the number of products being folded into the UMA structure, the UMA has provided the foundation upon which the UMH will be built. Jean Sullivan, CEO of Dover Financial Research, cites the UMA's capabilities. "Not only does it deliver aggregated information on the back end and a process on the front end that simplifies administration, it also provides the ability for a sponsor firm or financial advisor to manage the portfolio for tax purposes, customization, rebalancing or whatever the firm wishes to offer."
    The UMH is a platform that will aggregate multiple accounts, initially at the same firm or with a single consultant or advisory team. "The real difference in the UMA and UMH from other products is that they are platforms and infrastructures," explains Sullivan, whose firm conducts research for the Money Management Institute in Washington, D.C. "It's a true 'household,' not just one account. You can have your child's college account and your spouse's IRA in a placeholder within the same structure to develop a solution at the household level, not just at the account level."

The "Glass Is Half Full" Perspective
    Existing systems and infrastructures are not set up to provide such a framework. As it is, advisors must manually input information from across client holdings to provide UMH-style service, something many independent advisors have been doing for years with their best clients. But an automated system to consider investment ramifications-including overall risk levels and tax management across registrations-would eliminate time-consuming work currently required to provide such a level of service.
    Explains Bullard, "The client with $5 million to $20 million in investable assets can go to a multifamily office or a high-end private bank that will manually coordinate those assets to provide this level of sophistication. It may not be automated, but there are enough fees flowing out of those assets for someone to take the care to do it. But clients with smaller asset levels fall below that threshold and are just not going to get that level of service."
    The UMH conceptually, according to Bullard, is a mechanism for delivering a family-office level of integrated service to the mass affluent marketplace. Len Reinhart, president of Lockwood, a service of Pershing LLC, and co-founder of Lockwood Advisors, a subsidiary of Bank of New York, describes the UMH as the "poor man's" family office. "Everybody would love to have their own family office-someone to take all the assets, combine them, look at the liabilities, make sure there is money in the checking account, do the taxes-but most people can't afford that [level of service]," he explains.
    Figure 1 shows how the UMH concept enfolds the existing structure to create the multiple-sponsor definition of the unified managed household. The most realistic scenario for the near term, however, is the creation of the UMH within a single sponsor.

The 'Glass-Is-Half-Empty' Perspective
    Although the technology that firms are setting up in order to offer the UMA will springboard to the UMH, the UMA itself is not widespread across the industry. According to Reinhart, the UMA must have a proposal system that encompasses looking at the client's needs, designing an appropriate asset mix, have a research function to help identify the best investment products and a rebalancing function, all on a fee basis. "There are very few places where all those capabilities are tied in, start to finish. It's not completely automated yet," he says. Reinhart describes the current UMH process as running individual UMAs, then manually combining account registrations to accomplish a UMH. He predicts full automation will be possible by the end of 2006.
    Some sponsors are already making big claims about assets they are managing with the UMH. "If you ask the amount of assets being managed with all the features, I'd say there are about $500 million," says Reinhart. "Yet, I hear people say they have $20 billion in UMHs. But they're really just doing data aggregation for $20 billion."
    Dover's Sullivan says the third-party platform providers have a little easier path to the UMH because more of them already have the UMA in place. "I'm not sure about the exact technology requirements needed to go from one to the other, but you'll see more UMAs added over the next year and they'll work out some of the issues with the existing technology and infrastructure. Anyone with an existing UMA structure will have a technology advantage," says Sullivan.
    Bullard's ideal of cross-firm collaboration may take years, but he cites the Money Management Institute's (MMI) Data Standards Subcommittee as the logical catalyst for such development. "Given the broad array of investment products and account types that the UMH framework covers, the MMI would have to actively work with other trade groups and third parties to make such an industry-wide UMH network a reality."

The Race To Development
    Independents have a little easier path to the UMA since they've basically been providing it-although predominantly manually-for years. "The good practitioners in the field are already doing UMHs," states Frank Campanale, CEO of Campanale Consulting and former CEO of the Consulting Group at Smith Barney. "They take all the pieces, pull them all together and create some type of unified report for the client." Such practitioners manually create reports from account information at other firms provided by the client.
    Although a couple of wirehouses are well on the way to developing the UMH, those firms in general have many more obstacles, including long-established silos of internal product, internal political struggles and lack of vision by the leadership. Independent advisors are unencumbered by such obstacles, although the manual labor required to delivery a UMH level of service encroaches on time and resources. James D. Stoker II, CIMA and managing director of WaterStreet Consultants in Austin, Texas, says advisors spend an inordinate amount of time just consolidating reports-so much time that they can't do the analysis work and be proactive about investment structures for their clients. "That's always been the issue and it still is," says Stoker. "The hardest thing for a large custodian is rewriting code and getting a system that's flexible enough to pull everything in. There has to be a lot of programming done so that all these different types of programs will be interfaced."
    Whatever the issues, what counts is the quality of service to the client. "Clients don't really care about all the different account numbers as long as they don't have to deal with them," explains Campanale. "If someone's doing it for them, they're happy. That person [the advisor] becomes the orchestra leader. And now, the responsibility of the industry is to make all those instruments play in harmony for the practitioner as best it can."