Taking Flight With UMAs
There’s been a lot of talk about Unified Managed Accounts (UMAs) lately.
For years these investment management platforms have been heralded as the second coming, yet when tasked with finding institutions soaring to success, we quickly conclude most are still grounded. (Click here if you would like to learn UMA basics.)
From our perspective, there are a few reasons for this phenomenon. Chief among them is that UMA is almost always viewed as a product, not a reengineering of the wealth management offering.
As many banks tiptoe into the use of UMA, they approach it as the big airlines might approach acquiring a new jet or adding a route, which results in roughly the same level of success those carriers experienced in the past few decades.
Adding a route or a jet doesn’t alter poor customer service, charging for bags, change fees or so many of the other nuisances infuriating today’s travelers. I think most would agree there is not much contrast between United, US Airways, American or the other major carriers. Yet, many travelers feel much differently when it comes to Southwest? 
LUV (you have to “love” Southwest’s ticker symbol) has truly created competitive differentiation in an established industry. They accomplished this not by adding another “frill”, (while charging for a pillow), but by addressing the very core of who they are and whom they serve.
The challenge when adopting UMA is the same. You must be willing; to change the fabric of your business at the very core.
Effectively taking on UMA means addressing changes within each of the following constituencies:
- Internal Investment Staff
- Sales Management & Sales Staff
- Regulators, Internal and External Audit
- Investment Committee, Board and Executive Management
- Operations, Administration and Service Staff
- Marketing Support
The flight attendants, pilots, baggage handlers, gate agents; virtually everyone in the organization has to adopt this new way of doing business, if the model is to succeed.This is much easier said than done, particularly when you consider the challenge of unwinding a legacy business model. With the airlines, the unions often fret upon making innovative changes, even when the very existence of the jobs they support are in danger of extinction. Look no further than the current state of AML, and the umpteen mergers and failures plaguing the industry.
One could argue the banking industry is equally fragile. Yet when faced with reengineering the Trust and brokerage businesses with innovative strategies, such as UMA, the resistance to change is palpable.
The reasons for this are as complex as human nature itself. Beside the impact on human capital, the organization must also consider how this new model affects almost every facet of how they do business including:
- Research
- Due Diligence
- Investment Policy Statement Design
- Allocation Models
- Trading and Execution
- Operations
- Compliance
- Performance Reporting
- Reconciliation
- Custody
- Rebalancing
- Tax Management
- Fees and Pricing
- Systems of Record
- Client Communications
There are critical decisions which must be decisively made and adhered to if the implementation of UMA is to succeed. Will you use open or hybrid architecture? Will you engage a Turnkey Asset Management Provider (TAMP) or build the platform yourself using best in breed “point solutions”? Will you use a models based platform? How will you adjust your pricing and compensation models? Will you actively tax harvest?
Southwest made these tough decisions, which is one of the reasons their business model is flourishing (“in the kingdom of the blind, the one-eyed man rules”) amid such turmoil in the industry. They choose to fly only one model of jet, the Boeing 737, they don’t advertise on Orbitz or Kayak, they have general admission seating versus assigned seats, no baggage or change fees and the list goes on. 
To be successful with implementing and adopting UMA, banks must be as bold as Southwest when reexamining industry paradigms and shifting client preferences. Viewing UMA as another product on the shelf is akin to adding a new jet or route, it’s not really going to create a competitive distinction unless you change the inner workings of your organization.
The failure to view the move to UMA in the proper context is the largest cause of disappointment among those intrepid executives who have tried to get airborne. This often unfairly cloaks UMA in a false light, blaming the platform versus the implementation.
So, when taxiing down the runway to UMA success, consider whether you are willing to make the hard decisions necessary to give your wealth management program the opportunity to soar above those clinging to an outdated business model.
Scridb filter
Date: January 17, 2012
