Technology Impact of Models-Only UMA and UMH Programs


Excerpts from the 2009 MMI Technology & Operations Conference.

The speaker for this session was Jean Sullivan, Managing Director at Dover Financial Research.

What is the Technology and operational impact of the increasing growth of model only programs, UMA and UMH? How are firms on all sides of this process managing the challenges these programs present?

The rate of growth of SMA’s asset levels have declined consistently since 2007, Jean reported. Some people think that the SMA industry is a dinosaur and the SMA investment product is obsolete. Dover doesn’t buy into that theory. They believe the SMA marketplace is in transition. Given the down market, the SMA investment product isn’t a good product and doesn’t meet investor or FA needs, Jean asserted. Once the market picks up again, she advised, SMA asset levels will rebound.

What’s the future of model portfolio programs?

“Our research shows that these programs just make sense and have a lot of advantages,” Jean reported. They offer efficient ways to deliver investment management, they allow investment managers to focus on their core capability of portfolio management, eliminate some unnecessary infrastructure, they enable functionality such as tax management customization which enable UMA’s to deliver on their value proposition, which is making sophisticated PM techniques more simple and available for FA’s. Within the UMA sector, model portfolio programs will continue to dominate.

What’s the future of UMA/UMH Platforms?

”We believe that the future of the industry lies in the UMA/UMH platform,” Jean stated. “In all of our interviews, every single sponsor said that fully-integrated, UMA/UMH platforms were a core initiative. The market crisis exposed vulnerabilities in UMA/UMH programs: they lack flexibility, they lack simplicity. Make life easier for the FA, make processes and portfolio construction simpler. UMA’s have been positioned as another platform, but what investors need are total solutions. Instead of an FA just selecting another platform they want to know ‘How can I facilitate retirement for my client?’ ‘How does wholesaling take place?’ ‘What’s the service model around UMAs?’ We clearly need to build more infrastructure and more functionality,” Jean argued.

This is an opportune time for the industry to retrench and digest current trends, Jean emphasized. It’s a great time to begin to identify inefficiencies in the existing infrastructure. There’s a huge opportunity for the industry to create communication standards to help firms become more efficient and mitigate risk.

Click here to download the powerpoint slides for this session.

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