As a plethora of wealth management strategies emerge on the Street, other investment strategies are being pulled into the mix. The separately managed accounts (SMA) space, for example, currently is in a state of reinvention as it copes with new client demands imposed by wealth entitlements. Originally conceived under a traditional brokerage model, SMA managers now are looking to rebrand themselves as wealth managers, according to Aite Group (Boston).

"The SMA industry has, step by step, moved farther away from selling SMAs as a product and has increasingly emphasized advice and consulting aspects," asserts Aite analyst Alois Pirker, who authored the report, "Market Trends in Separately Managed Accounts 2006: Unified Managed Households." "The overreaching goal has been to give advisers the tools necessary to become wealth managers and to ultimately migrate a larger part of client assets into fee-based accounts."

Enter unified managed accounts (UMAs), one of the newest buzzwords in the SMA space. While the definition of a UMA is debatable, it is widely accepted as an extension of multiple style portfolios (MSPs), a type of separately managed investment vehicle that allows investors to take advantage of a variety of management styles. "Traditional SMAs and MSPs are all about direct client ownership of the underlying securities," says Pirker. "UMAs allow a portfolio to be rounded out with other instrument types, such as a mutual or hedge fund."

It's exactly this type of packaging and accessibility that makes UMAs so appealing, according to Randy Bullard, EVP of business development for UMA provider Placemark Investments. "Separate accounts are notoriously complicated, with many different managers trading many small accounts on lots of different sponsored platforms," he says. "UMAs reduce the burden of moving parts drastically. You've got a single entity -- an overlay manager -- that handles most of the complexity."

Mike Winkel, president of SunGard Advisor Technologies, says one of the greatest benefits of UMAs is their ability to simplify the investment process for individuals. "In the past, we've started out with the SMA programs, which are taking an institutional model and bringing them to a retail level," he says. "A good UMA approach is looking holistically across all of the clients' assets and making sure they have the right asset allocation in the right registration codes and tax attributes."

SunGard recently added UMA capabilities to its WealthStation wealth management solution, which integrates with other SunGard solutions in the areas of financial planning, portfolio construction and trust accounting. According to the vendor, WealthStation 2.0 provides overlay portfolio management capabilities by linking with Smartleaf's (Cambridge, Mass.) Portfolio Manager, a tax rebalancing tool.

According to Steve DeAngelis, SVP and managing director of PFPC Managed Account Services, UMAs can drive a competitive advantage. "Advisers who can combine an array of investment vehicles into a ... cohesive account will have a competitive edge against advisers who can't," he says. "Considering that UMAs offer both marketing sizzle as well as tangible client benefits, sponsors fear that if they miss the UMA express, they may be at risk in regard to attracting and retaining clients."

PFPC is the largest third-party managed account platform provider in the industry, with close to $69 billion in assets serviced (as of the end of Q3 2006) across 40 enterprise organizations. PFPC counts some of the nation's largest banks, insurance companies and brokerage firms among its clients. Through ADVISORport, a federally registered investment adviser and a wholly owned subsidiary of PFPC Worldwide, enterprise clients of PFPC Managed Account Services have access to an array of UMA product solutions, including an optional tax-managed overlay for each client account.

But DeAngelis is quick to point out that consumers are not demanding UMAs, as individuals are asking advisers for solutions, not for UMAs specifically. "UMA is a concept that has very little visibility outside of financial institutions," he says. "This concept will continue to be sold rather than bought. At this time, UMAs have barely made a dent in the marketplace."

Rather, DeAngelis explains, wealth managers, who also need to focus on limiting regulatory risk, look to UMAs to provide greater risk controls. With UMA technology, the manager can monitor the suitability of constructed portfolios, he adds.

"It's imperative to have a front-end, adviser-facing piece of technology -- a Web-based, wealth management workstation of some sort that allows an adviser to profile a client," says Placemark's Bullard. "If you don't have this front-end technology, then it becomes a paper-based process. Because the product is so complicated, the process basically implodes."

Helping Wealth Managers With Technology

Smith Barney Consulting Group tapped Placemark's front-end expertise, appointing Placemark as the active overlay manager for Smith Barney's new SELECT Portfolios in April 2006. SELECT is an MSP program available to more than 13,000 Smith Barney financial advisers and their clients.

Placemark's Overlay Portfolio Management (OPM) technology coordinates the trading activity of separate account managers and other products, such as mutual funds, while considering client customization requirements for risk, tax and restrictions as specified in each client's investment policy statement. The technology enables wealth managers to provide mass affluent clients with a single account that can include SMAs, mutual funds, individual stocks/bonds and other investment vehicles. "This enables wealth managers to deliver diversified ... and comprehensive investment solutions to client assets in a very efficient manner," says PFPC's DeAngelis.

"UMAs pull it all together and allow extremely high degrees of customization," explains Placemark's Bullard. "Two- hundred-thousand-dollar accounts can now get the same degree of customization that a $50 million account receives."

Another innovation poised to hit the SMA industry is the unified managed household (UMH). While UMAs manage client assets within a single account, UMHs focus on the totality of a client's assets, says Aite's Pirker. "Consolidated data is at the heart of any UMH platform," he says. "Once a complete picture of the client's assets is established, this data can then be used to produce a household-level asset-allocation view."

Planning data (the client's objectives and preferences) and product data (performance, holdings and risk attributes) are critical to a successful UMH strategy, relates Pirker. Because the UMH concept addresses a higher volume of high-net-worth business, automation of these feeds is a necessity, he stresses. This is where tech firms such as Albridge Solutions, CashEdge and Yodlee, which help automate and distribute UMH data to wealth managers, come into play. But technology is only part of the UMH equation, according to Pirker, who says that the full implementation of a UMH concept will become a reality only when the wealth management industry establishes protocols and mechanisms for exchanging client account data.