UMAs Get New Technology

Terry Flanagan

Unified managed accounts are redefining the investment management landscape.

A shift in the managed accounts industry toward model-only portfolios is ushering in a new wave of technology solutions for the overlay management process.

DTCC, in collaboration with The Money Management Institute (MMI), the national organization for the managed investment solution and wealth management industry, has developed a model management exchange service, a  new technology platform designed to standardize and automate the model distribution process between investment managers, overlay portfolio managers and model program sponsors.

Model-based portfolios, the latest version of unified managed accounts (UMAs), merge multiple asset classes into a unified client account that sponsors (broker/dealers) usually customize for their clients for tax optimization and investment preferences.

Sponsors and investment managers currently rely on disparate systems and ad-hoc processes to manage their model distribution to and from model program providers, resulting in significant inefficiencies and risk within the Model/UMA marketplace.

“The DTCC service provides a single communication hub that allows managers to communicate their model portfolios to multiple overlay managers, eliminating the need to communicate via multiple channels for different programs,” Curt Overway, president and portfolio manager at Managed Portfolio Advisors, told Markets Media.

Managed Portfolio Advisors (MPA), one of the industry’s largest overlay management firms with $9.8 billion in assets under management as of June 30, 2011, has signed on to DTCC’s model management exchange service.  MPA is a division of Natixis Asset Management Advisors.

As the managed accounts industry shifts away from traditional separately managed accounts to model portfolio formats, it continues to face many of the same operational challenges that created barriers to growth a decade ago,” said Ann Bergin, managing director and general manager, DTCC Wealth Management Services.

What’s different today is the industry’s ability to leverage lessons learned from the SMA market to swiftly build a flexible solution that addresses the operational needs of the Model/UMA market while supporting significant and rapid growth without increased operational risk or burdensome cost, Bergin said.

“Flexibility to adapt our process to managers, rather than forcing them to conform to a rigid overlay routine, is a key part of how we work to preserve the integrity of managers’ underlying investment strategies,” said Overway.

According to the MMI, UMAs comprised some $123.7 billion of the $2.1 trillion total managed accounts market in the fourth quarter of 2010, up from $61.2 billion of the $1.7 trillion market in the same 2009 period.

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