For years, Wall Street has been touting a type of brokerage account it hopes will be simpler and better than what investors and advisers have used for years. After a slow start the vehicles, called unified managed accounts, are finally starting to catch on.
The accounts, which go by the acronym UMA, combine a mix of mutual funds, exchange-traded funds and another vehicle called a separately managed account, which typically holds a portfolio of individual stocks and bonds selected by a professional money manager. This account within an account is designed for investors of $500,000 and up.
Unified managed accounts are supposed to greatly simplify the way both investors and advisers track investors' brokerage assets, which sometimes ended up in a hodgepodge of accounts as Wall Street firms shifted over the past decade to charging most of their clients annual fees instead of trading commissions.
A key advantage: UMAs make it easier to review returns from, say, two mutual funds and three dozen stocks tied to different separate account strategies on a single statement. The consolidated reporting is in turn supposed to lead to better investing moves, especially with regard to taxes.
But the new technology did not catch on at first, a bit like the tablet computers that came and went before Apple Inc. sold the public on the iPad. Now that's beginning to change.
UMA programs at the biggest brokerages like Morgan Stanley Smith Barney and Bank of America Corp.'s Merrill Lynch have come to boast tens of billions of dollars.
Less obvious names, such as TIAA-CREF, known for its retirement plans, and E*Trade Financial Inc., traditionally a discount broker, have launched versions. In all, UMAs held $129 billion at the end of the first quarter, according to the researcher Cerulli Associates, up from $80 billion a year ago.
For investors or financial advisers thinking of taking the plunge, here are some of the pros and cons.
• UMAs are designed to hold a broad range of investments, but for many, the goal of a single quarterly statement is still a ways off. Stocks and mutual funds in individual retirement accounts are still segregated from those in taxable accounts, although sometimes these can be in their own UMA.
Also, back office logistics prevent many popular alternative investments like hedge funds and currency or commodity holdings from being held in UMAs at all.
• Almost every UMA promises some kind of tax benefit. The marketing pitch typically involves a scenario like this: An investor's large-cap stock manager decides to sell Google Inc. while, simultaneously, her growth stock manager decides to buy it. Keeping both managers' picks in a single portfolio ensures the investor will skip the unnecessary trade, avoiding a capital gain. But it's not clear how often such situations arise in real life or ultimately how much investors end up saving on taxes. More sophisticated tax strategies, such as those developed by Placemark Investments Inc., do exist, but seven out of 10 UMA accounts lack them, according to recent data by Dover Financial Research.
• While separately managed accounts are the cornerstone of the new UMAs, these strategies are different from the separately managed accounts brokerages have marketed for years.
The key distinction: In the past a money manager like Neuberger Berman Group LLC or Lord, Abbett & Co. traded stocks on behalf of each of the hundreds of individual investors that held a separate account.
Under the new UMA scheme, these managers typically send trading instructions, known as models, to brokerages that themselves make the trades.
While brokerages and money managers hope the new arrangement won't hurt investment returns, not everyone is convinced. The fund researcher Morningstar Inc., for instance, does not rate the UMA versions of separate account strategies because their performance is based on models rather than actual trades.
