Goals-Based Robots Might (Someday) Save The UMA

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UMA… Somehow, whenever I see that acronym, it makes me think of some martial arts blood sport (like MMA or UFG). The reality of actually building a Unified Managed Account platform might be less bloody, but like it’s mnemonic cousin, you are definitely going to get knocked around a lot.  
But why?  
On the surface, UMA makes so much sense!  Single account structures make operations (including the gruesome onboarding process) a breeze!  Fewer accounts mean lower costs (as most tools and custodians charge per-account).  Advisors should be swooning over them, as the increased flexibility and access to more niche products is simple and straight forward!  
(queue the knuckle-to-broken-nose sound) “Ouch! Wait! Why is this so painful!?”

The Jab: Legacy accounts will not easily collapse into the UMA.  You’ll need to grow it from scratch, with cash-invested new relationships, or risk a painful tax consequence to clients.
The Right Hook: You will need to re-build or construct new billing models to track the sleeve-level, and you’ll need to start keeping track of the manager payments.
The Uppercut: Consolidating UMA and non-UMA accounts or portfolios is a nightmare on accounting and performance systems.  Few, if any, are able to do this today.
The Sucker-Punch: Advisors don’t want to use multiple systems to manage multiple types of portfolios.  Keeping track of them is a nightmare.  
Below-The-Belt: Convincing Advisors to make the huge leap with existing clients (including the huge operations lifting to collapse accounts) is daunting, and many will see this as an encroachment on their value proposition.
UMA combatants find out the ancillary changes needed to run one successfully are immense. At the end, the benefit to advisors is far less than most people would expect… especially when the advisors are managing multi-account portfolios.  Last, clients really don’t care whether they have one account or 12, as long as someone can make it look like one concise set of assets.
So, should we expect UMA to ‘tap out’ or throw in the towel?  
Nope!  And here’s why:
UMA has its challenges, and it’s been far harder to gain traction than the Separately Managed Account movement did before it.  However, there are two emerging ‘main events’ that might put UMA back on its feet:

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The first emerging event might be Robo.  Sick of reading about it, yet?  Yeah, me too.  But hear me out: Robos + Active Management Sleeves = The ideal bridging strategy between robo and traditional wealth management relationships. 

We have an emerging class of investors, who STARTED their investing life with a single, simple, DocuSign®-opened account, tailored to their specific (albeit simple) investing needs. They were sold heavily on beta-only principles and simple, easy to understand portfolios that met their long-term investing needs.  Great!  But what happens when the Sue and Sally investor (with $50K in their robo account) cash in their Uber options and need to find a home for that additional $10-20M?  Should their portfolio change to accommodate their new wealth? Does the ‘Alpha-is-for-suckers’ argument stop, when a client crosses into someone’s ham-handed segmentation strategy?  Do advisors really expect clients will hand over the keys, open a dozen sub-accounts, and accept the 100+bps being charged for legacy clients?  No.  

I predict this 'growbo-advisor' ability could serve the growing wealthy robo-clients by adding active manager sleeves to augment the robo for a low-cost and friction-less bridge to other products or services. 

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The second event might be Goals-Based-Investing, arguably the least-technologically-addressed component of our modern advisory world. 

There have been volumes written about this client-friendly way of managing portfolios: Thoughtfully planned and compartmentalized investments aligned to goals ‘buckets’ could revolutionize the way clients and advisors talk about markets, return, and client expectations. It changes the idea of wealth from something we observe to something that adds specific value to your life or others.  When done correctly, the advisor/client discussions and the digital experience would focus on ‘is my portfolio working to achieve my specific goals?’ and not ‘is my portfolio beating a generic benchmark?’ 

While some advisory firms (and a few tech firms) claim to do this, it’s far from the optimal experience clients should expect.  To manage a portfolio toward multiple goals simultaneously, the advisor will need the ability to carve out specific assets and portions of assets into a clients’ specific goals ‘buckets’.  For example, a client could hold 5000 shares of WFC, but 4000 shares are working toward the ‘Retirement/Cash Flow Goal’ and 1000 shares are working toward the ‘Grandkids Down Payment Goal’.  To efficiently manage these goals, adjust, re-allocate and provide an accurate picture of the performance of each goal, Advisors will need the ability to sleeve accounts and aggregate assets from a number of accounts. Re-wiring the UMA sleeve capability could provides this transparency and can act as the goals-based lens over the client’s assets will be critical to claim that a client’s assets are optimized toward their goals. 
Well, that’s it:  UMA is the exciting future investing platform that will solve all problems and bring us portfolio management bliss, right? (cue the nose-breaking sound again).    

Well, if you need a good ‘cut man’ or just want to chat about advisory technology, F2 Strategy is in your corner.