Prior issues of this newsletter have documented how model portfolios can help advisors efficiently manage clients’ day-to-day investments, and the how ETFs have become building blocks for those portfolios.
But a paper model or a model-delivered separately managed account are just two of the ways advisors are adopting ETFs in the move to fee-based advice. Unified managed accounts, which tend to be tailored for high-net-worth investors, are growing in popularity, a new report shows. And the programs, common at wirehouses, are ready-made for ETFs to be mixed with other product types within them.
Assets within UMAs soared 95% between the beginning of 2020 and the end of 2021. Such accounts represented $2.3 trillion as of March 31, or 22% of the total managed account market, according to Cerulli Associates data reported in Financial Advisor IQ’s sister publication, FundFire.
There are many reasons for the adoption of these accounts, which allow advisors to wrap ETFs, mutual funds, separately managed accounts and other investments into a single account, which means one client statement and performance report. And as technology has allowed for better, more seamless, recordkeeping, some platforms like Merrill and UBS have been consolidating ther managed account programs and putting UMAs at the forefront, FundFire reports.
Beyond operational efficiencies driving UMA growth, there are cost efficiencies for clients, too. And anytime fees come into focus, ETFs get some shine. UMA program fees fell 25 basis points between 2016 to 2020, with most of that whittled from the account advisory fee. But investment fees covering vehicles within these accounts also fell from 34 bps to 32 bpss.
ETFs help keep the overall UMA fees down because they are simple and relatively cheap to trade, easy to get reporting on and can be combined and assembled in myriad ways. They also serve as clean portfolio building blocks and can be paired with higher-fee products like SMAs or even alternatives in custom client portfolios.
Fidelity in April rolled out two UMAs that purport to do just that. The Model Portfolios with SMAs & Tax-Aware Model Portfolios with SMA mix a sleeve of SMAs with mutual funds and ETFs form Fidelity as well as iShares, as reported in sister publication, Ignites. The models allow advisors to differentiate themselves from those who use off-the-shelf portfolios through the SMAs allocations while using ETFs to keep costs low and reduce client minimums. The traditional model with SMAs require a $300,000 minimum, while the more-SMA-heavy tax-aware account has a $1 million minimum.
Whether in UMAs or other managed accounts, expect ETFs to keep popping up at the heart of these portfolios as advisors seek the cost and flexibility the wrapper offers.