“UMAs are designed without consideration of what account assets are in. Now, you can put UMAs together and get a customized portfolio for taxable and qualified accounts and a higher degree of tax efficiency.
“Assets with the lowest tax efficiency, like actively managed mutual funds, can be held in tax-advantaged accounts like IRAs and Roth IRAs. Tax-efficient assets, like municipal bonds, can be directed to taxable accounts.”
The result is significantly less tax drag on the portfolio—and advisors released from doing asset location over hours on spreadsheets. Their productivity goes up.
“Now you're operating like a household-level management system while working on a single account structure and UMA plumbing,” Harry said.
He noted that using asset location diminishes the need over time for tax harvesting, as opportunities for it dwindle when assets are placed in accounts for maximum tax efficiency.
I asked the question I expect advisors will: What about direct indexing?
“It can be a sleeve in a UMA,” said Harry.
Advisors who save their clients more money on taxes are well positioned to make their case to those clients for consolidating assets and accounts.
“There’s more after-tax money for clients, more AUM for the advisor, more net new assets for the firm,” Harry said. “It’s a win-win-win.”
Jack Sharry is co-chair of MMI's Digital Advice Community, a member of the Next Chapter Executive Leadership Advisory Board and co-chair of Next Chapter Leadership in Action. He hosts the WealthTech on Deck podcast, is the author of the book Authentic and Ethical Persuasion, and is executive vice president of LifeYield.