How Adhesion UMAs stack up to traditional manager products

Transparency, cost and after-tax returns top the list of advisor concerns regarding current investment vehicles. In response, advisors' interest in Unified Managed Accounts (UMAs) as the implementation vehicle for their clients' investment strategies is rapidly growing.

The table below summarizes the important benefits of Adhesion UMAs compared to traditional manager products.

 

Adhesion UMAs

Separately Managed Accounts

Mutual Funds / Wrap Programs

Transparency and Risk Management

Real-time, 24x7 visibility to holdings. Flexibility to make substitutions based upon risk. Adhesion manages overlap/ overconcentration across managers.  Accounts held at major, independent custodians and are portable across custodians.

Daily visibility to holdings. Cannot effectively coordinate investment activities or overlap/ overconcentration across managers. Need LPs to pool client assets to meet minimums.  Captive programs at sponsoring brokers.

Disclosure of holdings dated by 1-2 quarters, way too late for risk based adjustments. No visibility of overlap/ overconcentration across managers.

After-Tax Returns

Tax sensitive rebalancing, opportunistic loss harvesting, tax budgets, avoid short term gains, wash sale avoidance.

Most managers do not offer this option. Impossible to coordinate across managers.

Generally very tax inefficient. Risk of being assessed big capital gains, even after loss of value.

Cost

0.45% to 0.90%. Single, efficient trading infrastructure, along with added services, of one overlay portfolio manager.

0.90% to 2.50%. Covers trading infrastructure costs for each manager.

2.00% to 3.00%, includes loads, redemption and 12b-1 fees, commissions and soft dollars.

Diversification Across Multiple Asset Classes

Can be achieved through one unified account.

Requires opening multiple accounts, one per manager.

Can be achieved through the one wrap account.

Client Preferences, pre-trade restrictions

Restrictions are integrated into each trading decision for the entire portfolio.

External managers cannot effectively accommodate client specific customizations. Cannot coordinate across managers.

Not available.

Access to Managers

Open architecture library of nationally known and "boutique" managers.   Incorporate firm-proprietary strategies. New managers may be added upon request.

Limited to those managers available on sponsor platform and by investment minimums of each manager.

Limited to those managers available in sponsors wrap program.

Investment Discretion

Clients' accounts are traded in accordance to advisor's specific direction.

Clients' accounts are traded in "cookie cutter" fashion by the external managers.

Not available.

Rebalancing

Sophisticated rebalancing and multi-manager coordination techniques.  Daily monitoring of allocation strategy, manager models and client restrictions which trigger a rebalance.

Managers rebalance accounts independently. Impossible to coordinate trades, and a challenge to rebalance, across managers.

Traditional tactical rebalancing only.

Account Paperwork and work flow

Open a single account. Switching managers requires no changes in custodian paperwork or client signatures and occurs same day.

New client paperwork required for each account or to switch managers, with at least week lag time. Operational headache and time consuming, requiring liquidations, funding and repurchases..

Open a single account. Switching manager products straightforward.

Handling of Existing Holdings

Adhesion manages tax sensitive transition of existing holdings to new strategy.  Adhesion UMAs can inherit existing shares and cost basis.

Time consuming process for advisor to place holdings with managers, if possible at all.

Requires selling out of existing positions to purchase program fund shares.