Separately Managed Accounts (SMAs) and Unified Managed Accounts (UMAs) actually share several similarities. They were both created as a way to give high-net-worth investors direct access to specific investment strategies rather than the “pooled” solutions offered by investment vehicles like mutual funds or ETFs.

While such solutions typically allow consumers to invest much smaller amounts of money, the tradeoff with “sharing” ownership in stocks comes in a lack of customization and transparency. Investors typically don’t know which companies they’re investing in at any given time and they can’t implement any specific investing strategies for their individual situation.

SMAs and UMAs not only involve the usual investor-advisor relationship, but also bring in a third party that investors don’t normally have much, if any, contact with: money managers. This additional touchpoint gives the investor total transparency into which companies they are investing in and customization in areas like their rebalancing schedule and tax efficiency.

Indeed, there are multiple similarities between the two types of accounts—so much so that you often see the terms used interchangeably—but what is the difference between SMAs and UMAs?

Separate vs. Unified

The primary difference comes down to the “separate” and “unified” parts of their names.

An SMA is a single account managed by a third-party asset manager, adhering to a specific investment strategy to which a client decides to allocate funds.

HNW clients often end up with multiple SMAs, which can be expensive, time-consuming, and clumsy to manage. In such a case, multiple SMAs are unified into “sleeves” (a.k.a., sub-account UMAs), or the more common method preferred today is to use blended-model, or holistic, UMAs.

Targeted vs. Holistic

SMAs invest in individual stocks or bonds, or potentially a blend of the two, and may target a specific asset class or style. One of the more popular examples today would be an ESG SMA, built to include only companies that align with an investor’s values (or exclude those that don’t).

By rolling up SMAs into sleeves, or sub-account UMAs, investors could target multiple strategies, asset classes, or individual stocks and bonds, thus providing the consumer greater flexibility and access.

But even with SMAs rolled into sleeves, they can still present some issues with multiple managers working separately on pieces of the same portfolio.

Hence, the holistic approach. Holistic UMAs allow for easier attribution analysis and enable the primary advisor to manage the whole account by adjusting allocations to the different third-party strategies contained within.

In the short history of the evolution from SMA to sub-account to holistic UMAs, the adoption of a uniform UMA framework by advisors and firms has quickly enhanced scalability and efficiency.

How We Use SMAs and UMAs

At Orion Portfolio Solutions, we understand that every client is different, and SMAs may be the right call for some, while UMAs may work better for others.

For that reason, we offer several SMA options, and we are constantly evaluating the existing universe to add more solutions. Moreover, we have made great strides to build out the SMA capabilities we offer, as we can also conduct customized ESG screens and exclude individual securities.

We also build, deliver, and manage UMA portfolios with a unique diversification process that seeks to align investment decisions with client objectives, across various market scenarios.

Learn more about how Orion Portfolio Solutions vets, maintains, and oversees a curated suite of strategist options by downloading our brochure.

This information is prepared for general information only. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. All opinions expressed herein are subject to change without notice.
 

2263-OPS-8/11/2021