10 Ways for Advisors to Use UMAs to Build a Stronger Business
1. Increase Company Profitability
At the end of the day, the goal of the Integrated UMA provider should be to help you produce greater sustainable profits for your firm. This is done through some combination of revenue enhancement and cost management. Revenue enhancement comes from improved investment products including asset allocation and manager/style selection, this in theory produces better investment performance allowing you to win new business and retain existing business. Cost management can come from elimination of redundant systems and rationalization of existing staff. We are not big advocates of the UMA as a FTE reduction strategy, rather, use it as a way to redeploy existing staff to more value-added activities, especially those that generate more revenue for the firm.
2. Be More Transparent with Fees
UMAs and managed accounts have full fee transparency, mutual funds do not. The brave new world of the future is full and honest fee disclosure. Lead the way in this area. Mutual funds bury their costs in the NAV and this is a convenient way to hide the true cost of asset management from clients. This should stop. UMAs can help you fully disclose fees, and you can and should charge more for this product. The average UMA fee is less than a managed mutual fund fee. Smart advisors need to take advantage of this.
3. Improve Performance Reporting
The 4G of performance reporting in the UMA world is the ability to get sleeve level reporting from a single custody and trust accounting setup. For those that pay a fee for each trust account setup or custody account setup, this can be a huge cost saving. Avoid those that bundle into a single account, but dont allow you to unbundle. You need to know your sources of risk and return.
4. Invest in Client-Facing, Not Client-Avoiding, Activities
Use an Integrated UMA provider to help you spend more time with your clients and prospective clients. If you have human resources dedicated, for example, to back office and mutual fund analysis, consider getting them more involved in the revenue generating process. A UMA provider should be able to provide a substantial portion of these functions.
5. Optimize Portfolios
Effectively combining managers and manager investment style with alternative asset classes into portfolios that reduce down-side risk and maximize upside capture is the 4G of multi-manager account management. Diversify among many asset classes, create dependable returns; minimize draw-down, and use proven institutional-quality complementary managers to generate alpha.
6. Reduce Trading Costs, Improve Trade Execution
Inefficient and ineffective trading will negatively impact performance. A good integrated UMA provider will have strong relationships with the sell-side (brokers and dealers) and you should leverage those relationships to the advantage of your clients.
7. Supervise Your Clients Other Assets
A good Integrated UMA provider can help you position yourself as the key advisor for all your clients assets - not just the assets you have on your books. Integrating the assets on your books with the clients held-away assets into a single consolidated report that only you and your client can see, is the first big step toward your getting those assets.
8. Streamline Trading, Settlement and Other Back Office Functions
A good Integrated UMA platform can help you ensure that minimal cost is allocated to back office functions. A good litmus test for back office efficiency is to ask, does anyone have to touch the trade? If yes, this is a red flag. If more than one touches it, this is a red flashing light with a siren screaming. If you dont get this corrected, the ambulance (your competitors) will soon take you to the hospital, DOA.
9. Retain Existing Business
Other financial advisors are hungry for new business. Wire-house brokers are ready, willing and very able to poach your clients. Remember, while you might think a $250,000 account is small, retail brokers will seek those accounts all day long. The bigger the account the more likely it is that multiple brokers are stalking it.
10. Win New Institutional Business
Institutional clients are fiduciaries and are held to a higher standard than non-fiduciaries. As such they need to ensure that their asset allocation model and manager selections are good, rational and defensible.