SMA vs UMA

Why Sleeves Are Easy and Inexpensive

These two terms, Separately Managed Accounts (‘SMA”) and Unified Managed Accounts (‘UMA’), are used throughout the financial services industry. The fact that they are at times used interchangeably can cause confusion as to the true nature of the underlying structure of these accounts and the benefits/drawbacks inherent to each one of them.

When SMArtX discusses an SMA account, they are referring to the idea of ‘one account, one strategy’, and the strategy is often executed directly by the asset manager. This type of arrangement, where the investor has a direct relationship with the asset manager, is often also referred to as a “dual-contract” relationship. This structure has a few benefits for the investor. Specifically, that the manager is the one handling the account and the client maintains a direct relationship with the asset manager. The drawbacks include the idea that the client has to source the manager in the first place, meet minimums for a SMA (these can be in the range of $20mm+), and has to have a different account for each strategy allocation. This can become very expensive, given the high minimums, and operationally burdensome when you have multiple accounts. For the manager, setting up the account and adding another relationship to the trade rotation creates additional operational burdens.

These drawbacks have led to the creation of the UMA account, which SMArtX refers to as ‘one account, multiple strategies and multiple individual positions’. The UMA is just one account opened by the client in their own name. This account can house multiple investment strategies, as well as hold individual equities (long and short), options, ETFs, mutual funds, and ADRs. The immediate benefits are compounded by the fact that SMArtX provides turnkey account opening and access to over 450 strategies, along with the ability to build & allocate custom portfolios across multiple custodians and accounts simultaneously. Each strategy is accounted for in a sleeve, which is a virtual account within the UMA housing the securities related to the strategy. Sleeves enable the investor to understand the performance of that individual strategy, despite it being held in the same account as other strategies and does not incur any additional costs or burdens on the investor. Leveraging SS&C Advent’s Black Diamond software, those investors can also understand the holdings of each strategy and manage household exposures across accounts. This functionality is all available for one, low fee and is fully integrated.

Not all UMAs can do this, but SMArtX’s unique technology provides a simple, easy solution for investors to effectively manage their entire investment management process.