Model Portfolio & SMA Strategists Showcase - Flipbook - Page 12
SMAs & MODEL PORTFOLIOS
THE HONEST
TRADE-OFF
What a UMA gives up
for consolidation
Trades inside a models-based UMA
sleeve typically get executed by the
platform sponsor, not the individual
manager. That means the manager
loses some ability to react instantly to
fast-moving markets in that sleeve.
For most clients, this is invisible. For a
client specifically paying for a manager’s
tactical speed, it’s worth naming out loud
before the UMA conversation, not after.
SMA vs. UMA: The Real Trade-offs
A
n earlier chapter defined these
structures (pp. 7–8), including
the bespoke discretionary path
that sits somewhat apart from the rest.
This chapter is about choosing between
the three most common structures
for an actual client: stand-alone SMA,
UMA, or model-only. That’s a decision
that turns on four questions. How many
strategies does this client need? How
much does customization matter to
them? How important is consolidated
tax management across the whole
portfolio? And what’s their account size?
WHEN A STAND-ALONE SMA IS
THE RIGHT CALL
A single SMA makes the most
sense when a client has one clear
mandate, say a concentrated equity
strategy for growth, or a tax-managed
municipal bond ladder for income,
and doesn’t need it integrated with a
dozen other holdings inside a single
tax-optimization engine. The advisor
gets direct access to institutionalcaliber management for that specific
slice of the portfolio; the client gets
full transparency into exactly what’s
held and why, and the fee negotiation
is simple because there’s only one
manager relationship to negotiate.
The trade-off shows up the moment
a client has more than one SMA.
Each manager sends separate
statements, on separate schedules,
using potentially inconsistent reporting
conventions. Rebalancing across
accounts requires manually contacting
each manager, waiting for trades to
clear, and moving proceeds. There’s
QUICK MATH
The rebalancing
phone tree
A client with three stand-alone SMAs
wants to raise cash. That’s three
separate calls, three separate trade
confirmations, three separate settlement
timelines to coordinate, done manually,
by the advisor, every time. A UMA
collapses that into one instruction. At
three SMAs, it’s an inconvenience. At six,
across a household, it’s a part-time job
nobody’s getting paid for.
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no button that says “true this whole
portfolio back up to target.” For a
client with two or three SMAs, that’s
an inconvenience. For a client with five
or six covering different asset classes
and mandates, it becomes a genuine
administrative burden that either
falls on the advisor or, worse, gets
neglected until the next annual review.
WHEN A UMA EARNS ITS
COMPLEXITY
A UMA solves that consolidation
problem directly by housing multiple
strategies (SMAs, model sleeves,
individual positions, even pooled funds)
inside a single account with a single
custodian relationship. Each strategy
lives in its own “sleeve,” which keeps
performance attribution clean while
still allowing the advisor (or an overlay
manager) to rebalance, raise cash,
harvest losses, and bill across the
entire structure at once.
The trade-off runs the other direction
from the stand-alone SMA. What a
client gains in consolidation, they can
give up in manager-level control. In
a UMA built around models-based
execution, trades typically get executed
by the platform sponsor rather than the
individual asset manager, which means
