How the UMA is changing the advisory space

Advisory firms sometimes note that sleeve reporting is a challenge when using UMAs. How has SMArtX worked to address those concerns?

At SMArtX, sleeve-level data is at our core. Unlike traditional systems that try to add sleeves onto an account-level structure, our platform is designed with independent sleeve-level books of record (IBORs) directly linked to the account-level IBOR. This ensures full transparency, allowing each sleeve’s positions, cash balances and performance to be accurately tracked while still providing a unified view at the account level.

This structure addresses the common reporting challenges advisors face with UMA accounts. It enables precise performance attribution by sleeve, aligns seamlessly with model strategies and simplifies overlay management by resolving conflicts in overlapping positions. Advisors and clients benefit from clean, reliable data that integrates smoothly with their preferred reporting platforms, ensuring a familiar and intuitive experience. With SMArtX, you get all the benefits of sleeves without the traditional drawbacks.

Where do taxes impact clients the most when trading happens? What are the evolving strategies firms can take to be more tax efficient?

Taxes can be a major burden for clients, especially when transitioning to a new model, particularly when legacy holdings are liquidated, causing high turnover. To address this, SMArtX introduced the Transition Analysis Tool in 2024. This tool allows advisors to move assets into UMA portfolios while minimizing tax impact by performing real-time lot-level calculations to assess liquidation costs and automate trades, ensuring the transition stays within a client’s capital gains budget.

Beyond the initial transition, SMArtX also offers Tax Loss Harvesting and Tax Impact Calculations in our Rebalancer, giving advisors proactive tools to minimize taxable events and offset losses throughout the year.

What truly sets us apart is our ability to optimize taxes at the account level while still providing clear sleeve-level visibility. Unlike traditional UMA platforms that limit tax lots to specific sleeves, our flexible approach can significantly boost after-tax returns, especially when paired with custodian-supported lot optimizations.

Advisors don’t see the backend connections that enable UMAs. Can you talk about the integration work done with data providers? What sort of effort goes into building these out – what sort of coordination takes place, how long, what are the challenges?

The SMArtX platform is built for real-time connectivity, delivering a true UMA experience with precise sleeve-level details. We pull live pricing from multiple market data vendors and allow for seamless swapping of vendors in real time, ensuring portfolios are always up-to-date with the latest valuations, critical for intraday trading and effective risk management. On the trading side, our embedded workflow management enables real-time order routing to custodians and executing brokers. As trades are filled, post-trade allocation messages flow back into SMArtX, maintaining a live book of record throughout the day. This lets advisors and asset managers submit multiple trading instructions across different sleeves, all processed as they come in.

At the end of each day, SMArtX syncs with custodians via nightly batch files, ensuring our account- and sleeve-level books remain tightly aligned for accurate reporting, trading compliance and performance tracking. This real-time infrastructure makes SMArtX’s UMA engine resilient, scalable and uniquely capable of supporting both advisor-led customization and asset-manager-traded strategies within a single account, all with the precision of a modern portfolio accounting system.

Technology continues to advance multiple segments of the financial industry into a more efficient and user-friendly experience. A core target of this revolution is the independent advisor and broker/dealer space, which has seen the continued amalgamation of services to promote unified technological hubs and integrated solutions across multiple services. Clients are also becoming increasingly savvy as firms marketing directly to consumers are helping to educate the end client, who in turn demands these advantages from the advisors.

These developments have created new possibilities for reporting, administering and managing client accounts and has led to a new ‘must-have’ on the list of technological requirements: unified managed accounts or UMAs.

How is your UMA sleeved?

A key construct of the UMA is the idea of “multiple strategies, one account.” The idea can be further expanded to encompass multiple kinds of strategies, including in-house asset allocations, model delivery strategies, or simply just individual securities. Each element within the account is segregated into ‘sleeves’, which act as a virtual account within the UMA and house all the securities related to any given investment strategy.

Sleeves enable the investor to understand the performance of that individual strategy or group of holdings, despite it being held in the same account as other strategies and does not incur any additional costs or burdens on the investor.

A fundamental and very important aspect of this ‘sleeving’ is the UMA operator’s ability to actually manage the sleeves by keeping the book of record at the sleeve level. This is different to having securities in a single account and a reporting program trying to break them out. A true UMA provider will maintain the sleeves within the account in this way to provide accurate sleeve-level reporting.

While UMAs, in and of themselves, create a better solution to accomplish the same goal that the creation of multiple SMAs attempts to do, UMAs also facilitate the next stage in advisor oversight of client accounts, called Unified Managed Households. This function is typically performed by a reporting tool, such as SS&C Advent’s Black Diamond product and brings together the accounts of all entities under a single client relationship. This can include qualified and non-qualified brokerage accounts, private placements, direct real estate investments, CITs and other investment structures.

Technology is constantly changing the way we live our lives. Innovation in the advisory space is no different, as technology streamlines the investment management process and operational administration of client accounts.

New ideas and tools are helping to salvage time, save money and avoid headaches. The generally better experience for both advisors and clients is shaping a new paradigm that will clearly define a demarcation between the advisor of yesterday and the advisor of tomorrow.