Cerulli has examined current and potential distribution opportunities through unified managed accounts (UMAs) in the third quarter issue of The Cerulli EdgeManaged Accounts Edition.
Similarly to the UMA article published in Global Custodians 2008 Summer Edition, Cerulli breaks UMA assets into several groups: separate accounts, mutual funds, exchange-traded funds, and other (such as alternative investments). Separate accounts are currently the largest distribution opportunity within UMAs, but asset managers looking to gather assets through separate accounts (via model portfolios) are presently limited to large-cap domestic strategies. Unfortunately, advisors are slow to adopt UMA accounts with their largest and most profitable clients, so UMA account balances remain relatively smallon average $271,000. In these accounts, allocations to other strategies, including small- and mid-cap are so slight that the separate account vehicle is all but impossible to implement, and mutual funds and ETFs become a more attractive alternative.
“Asset managers hoping to distribute other strategies through model portfolios should consider creating concentrated versions of their traditional separate account strategies,” says Jeffrey Strange, Associate Director at Cerulli Associates. While these portfolios can be riskier, they enable smaller-balance clients to benefit from overlay portfolio management and tax optimization.
Cerulli believes that clients who fled traditional separate accounts in 2008 may re-enter the market in UMA accounts and this could push account balances higher, enabling asset managers to see more opportunities in the future to gather assets via model portfolios outside of the large-cap equity space.
The edition also shows that the likelihood of acquiring assets through the distribution of separate accounts into UMAs varies greatly depending on the strategy the asset manager is employingeven though separate accounts currently represent the largest asset-gathering opportunity within UMA programs.
It also stresses that while the obvious benefit of UMAs is the creation of both a more efficient operational environment and client experience, the more important development brought about by UMAs is that clients should receive more sophisticated portfolios that address their unique needs.