Model Portfolio & SMA Strategists Showcase - Flipbook - Page 13
SMAs & MODEL PORTFOLIOS
the manager loses some ability to react
instantly to market conditions inside that
sleeve, a nuance covered further in the
overlay management chapter (p. 19).
For most clients this trade-off is invisible.
For a client paying specifically for a
manager’s tactical responsiveness, it’s
worth surfacing explicitly.
THE DIRECT-INDEXING WRINKLE
This decision has gotten more
consequential in the last few years
because direct indexing (building a
portfolio of individual securities that
tracks an index while allowing tax-loss
harvesting and personalization at the
security level) increasingly lives most
naturally inside a UMA framework.
Some platform providers argue that
UMA technology, using SMA “sleeves”
or subaccounts, is the preferred way to
manage direct indexing at scale, since
it allows tax-loss harvesting, wash-sale
management, and security substitution
to happen automatically at the account
level rather than being handled sleeve
by sleeve.
A client who wants both a directindexed core equity sleeve and a
separate fixed-income SMA is, in
practice, being steered toward a UMA
almost by default. Not because UMAs
are categorically superior, but because
the tax-optimization math genuinely
works better when the software can
see the whole portfolio at once.
WHO’S ACTUALLY BUILDING
THE SLEEVE
Not every sleeve inside a UMA comes
from an outside asset manager. Many
platforms distinguish between a
manager sleeve, built and traded by a
third-party SMA strategist, and what
the industry calls a rep-as-advisor
sleeve, where the advisor themselves
acts as the portfolio manager for that
specific piece of the account, selecting
and trading individual securities or
Anatomy of a UMA: Sleeves Inside One Account
One unified managed account
SMA sleeve
(equity)
SMA sleeve
(fixed income)
Model sleeve
(core allocation)
Direct-indexed
sleeve
Advisor-managed
positions
Pooled fund
holdings
Overlay manager rebalances, harvests losses, and bills across all sleeves at once
funds directly rather than delegating
to an outside firm. This matters for the
SMA-versus-UMA decision because it
means a UMA isn’t necessarily an allor-nothing outsourcing structure.
An advisor can build a UMA with two
outsourced manager sleeves handling
equity and fixed income, and a third
rep-as-advisor sleeve where they
retain direct control, for a concentrated
legacy position they’re not ready to
hand off, for instance, or a sector bet
they want to manage personally. This
hybrid approach is worth knowing
about specifically because it resolves
a false choice some advisors feel
stuck with, namely full delegation
everywhere or full manual management
everywhere. A UMA’s sleeve
architecture supports mixing both
within the same account.
HOW BILLING ACTUALLY WORKS
ACROSS THE TWO STRUCTURES
Fee mechanics differ enough between
stand-alone SMAs and UMAs that it’s
worth spelling out concretely rather
than assuming it works the same way.
With multiple stand-alone SMAs, each
manager typically bills separately,
meaning a client may see several
distinct advisory fee line items across
several statements, each calculated
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on that manager’s own billing cycle
and its own definition of billable assets.
A UMA generally consolidates this
into a single billing relationship. The
platform sponsor collects one fee (or a
small number of fees) covering all the
sleeves, and distributes the appropriate
share back to each underlying
manager behind the scenes.
For an advisor managing fee
transparency with a client, the
discipline the due-diligence chapter’s
fee-stacking framework insists on
(p. 24), a UMA’s consolidated billing is
genuinely easier to explain and audit
than reconciling several managers’
separate invoices each quarter. That is
WHEN TO REACH
FOR THIS
Stand-alone SMA
vs. UMA, fast
One clear mandate, client wants granular
manager-specific reporting: stand-alone
SMA. Multiple strategies or asset classes,
consolidated tax management matters
across the whole relationship: UMA. Direct
indexing is part of the picture: UMA, almost
by default, since the tax-optimization math
works better when the software can see
the whole portfolio at once.
