Citi released a white paper entitled, “ Enabling Financial Advisors to Control UMAs by Eliminating Managed Account Silos: Separating the Provision of Advice from Portfolio Administration and Execution”.
The white paper provides an in-depth study highlighting how the ongoing shift in wealth management from transaction-based to fee-based accounts continues to be largely driven by advisor-controlled products. The white paper finds that in order to increase growth and reduce cost of UMAs, the administration and rebalancing should be basic capabilities of the advisor’s platform, separate from the provision of asset allocation or product selection advice now often provided by third party overlay managers.
The whitepaper further explores why wealth management firms continue to drive managed account assets into advisor-controlled programs versus UMAs by over three to one. Other findings include:
- Financial advisors consider asset allocation and product selection core to their investor relationship, preferring not to pass that function to a third-party overlay manager
- Profitability of the UMA is lower than other managed account products because the overlay manager, in addition to asset allocation and product selection, provides account services and separate portfolio technology
- Lack of automated house holding capabilities
The stronger inflow of assets into advisor controlled managed account products, coupled with a trend toward advisor independence, suggests that UMAs may need to evolve into a more advanced portfolio management delivery mechanism, not another third-party controlled silo, by:
- Allowing for an advisor to control UMA/UMH asset allocation, product selection and rebalancing
- Providing the distributor with advisor guardrails and pre-trade restriction management tools to maintain oversight
- Providing household rebalancing and performance reporting for the entire investor relationship
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