Fifteen years ago, I spoke at an advisor conference hosted by Brinker Capital (now Orion). John Coyne, then vice chair at Brinker and a longtime friend, captioned my presentation: “UMH—It’s Here!”
John and I still laugh over this. The unified managed household (UMH) wasn’t here then, and it hasn’t arrived yet.
Less amusing is when I hear folks continue to claim it is, as a senior advisory executive recently told me in a conversation about a technology his firm used and said it “did UMH.”
I gently apprised him that no one has built a UMH yet. The elements are at hand, but the challenging part is coordinating the many aspects of a UMH within existing technology platforms and advisory practices.
UMA Is Not UMH
Today, I joke that the unified managed account (UMA) is what came of trying to build a unifed management household; designers gave up when they discovered how complicated it is to build the UMH.
By definition, UMH enfolds the multiple accounts that make up a household portfolio. Those include workplace accounts, IRAs, brokerage accounts, alternatives, insurance and annuity contracts, real estate and more. UMH applies overlay technology to coordinate the risk and tax management across all of a client’s holdings and accounts.
Popular single-account products, like the UMA, are designed to limit taxes, but they don’t maximize full portfolio outcomes. Investors can realize tax alpha only by managing at the household level, as many studies have validated.
An EY study of LIfeYield methodology found as much as a 33% improvement in after-tax outcomes from household management. The Vanguard Advisor’s Alpha report in 2022 noted that asset location—placing investments in the types of accounts with the best tax treatment—could add up to 60 basis points for some investors.
A tax-smart withdrawal strategy (another UMH requirement) could contribute up to 120 basis points, the Vanguard study said.
Recognize UMH Poseurs
There are ways to detect false claims of UMH.
1. Methods and technology apply to single accounts. The only way to maximize after-tax outcomes is to manage taxable and tax-deferred accounts in a coordinated way. Asset location has the most profound effect on outcomes, and, by definition, it is a multi-account exercise. “You want to make sure down the road 10-20 years that assets were located properly,” Charles Smith, a partner in EY’s wealth and asset management practice, said on a WealthTech in the Weeds podcast.
2. Risk tolerance assessments are once and done on one account. When opening an account, clients complete a questionnaire on their goals, time horizon and comfort with investing risk. A registered rep files it, and most often, it's done. In real life, investors have multiple accounts, possibly with different risk assessments, and they are spread around multiple managers and advisors. But risk tolerance changes over time. A trading account opened 10 years ago will likely have a different risk score than an SMA opened yesterday.
3. Rebalancing happens account by account. Rebalancing across multiple accounts is required to keep household portfolios aligned with a client’s asset allocation and asset location. There are many fine single-account rebalancers, but if the risk isn’t managed across multiple accounts, it’s not a UMH.
4. It puts tax harvesting on a pedestal. Tax harvesting is a common and useful way to save investors money and increase balances (and asset-based fees). But it’s only one element of tax alpha and not the most important one (which is asset location; see above). Also, the benefits of tax harvesting decline as assets are sold to harvest gains and losses.
5. It aggregates accounts but doesn’t coordinate them. Advisors can pull up an aggregated view of all their clients’ accounts and holdings but only manage a portion of those on an account-by-account basis. Some will spend hours using spreadsheets to help clients, but time prevents that from being done for all clients (i.e., “at scale”).
It’s Time For UMH. Let’s Go!
The need for UMH grows as boomers retire en masse and Gen X gets serious about retirement planning. These investors know it’s time to stop managing their portfolios higgledy-piggledy. Their advisors need technology to minimize the outflows to pay taxes and optimize income.
While UMH technology is available, it requires significant changes and upgrades to systems managing trillions in capital. Firms must juggle priorities for capital investment. Internal politics and earnings concerns also stall investment in UMH.
Projects to build a UMH typically are “multi-year, multi-initiative projects,” Rose Palazzo said on a recent WealthTech on Deck podcast. She has been at the center of such projects at Morgan Stanley, Envestnet | MoneyGuide and now Edward Jones.
She described how teams first need a vision of where they want to be, then prioritize projects and pick a starting point that they think will get the most uptake from advisors and provide the best benefit for clients.
Then, on to the next project, she said, noting how complex the financial lives of today’s clients are and the need for advisors to use financial plans as touchstones for frequent contact and possible adjustment.
So, UMH is not here yet, but the industry’s brightest minds are on it (listen to them weekly on my WealthTech on Deck podcast). We’re getting closer every day as more pieces of the puzzle fall into place.
Jack Sharry is the EVP and chief growth officer of LifeYield and host of the WealthTech on Deck podcast. He is on the board of Next Chapter, a leadership community dedicated to improving retirement outcomes.