Unified Managed Accounts: A Peek Into the Future

                                           Unified Managed Accounts: A Peek into the Future

                                                                           Provided by

               John G. Brewster                                                                  Randall V. Brewster

               Senior Vice President - Wealth Management                       Financial Advisor

               Senior Portfolio Manager,                                                     Portfolio Manager,

               Portfolio Management Program                                            Portfolio Management Program

This article has been written and provided by UBS Financial Services Inc. for use by its Financial Advisors.

As investors have gained a greater appreciation for paying a fee for ongoing advice and investment management services rather than commissions, they have been generally met with mutually exclusive options.  Individuals today can typically choose from among advisory programs that may include mutual funds or separate account money managers that provide personalized and professionally managed portfolios or ETFs, to name a few.

When deciding which program to choose investors usually consider relative advantages and disadvantages of each investment type and the amount available for investment. Typically each investment program has its own account, which results in separate statements and performance reporting.

That's beginning to change.  Recent innovations now allow investors to combine these options into one account and receive a single, comprehensive statement and quarterly performance report that incorporates all of the account holdings.  These accounts are called Unified Managed Accounts (UMAs).

Participating in a UMA usually begins with a questionnaire to determine your personal investment objectives and tolerance for market risk.  Based on your answers, an asset allocation comprised of multiple asset categories (e.g., stocks, bonds, cash) is presented. Once you agree upon an allocation, or modify it to your satisfaction, it's time to select the appropriate investments.

Individuals work with their financial advisor to determine an appropriate investment vehicle for each asset class comprising the asset allocation recommendation. For instance, do you fill the large cap equity allocation with a mutual fund, ETF or a separate account manager?

Once the investor has implemented the asset allocation recommendation with ETFs, mutual funds and separate account managers, he or she will begin to receive statements and quarterly performance reports that typically will detail the performance of each individual investment as well as the complete portfolio.

An important feature of a UMA is a rebalancing service.  Too often, investors who started out properly diversified find that they have drifted away from that allocation due to the different performance results of the individual components of the portfolio.  For example, the outperformance of stocks relative to bonds will cause an allocation to become more weighted to stocks, increasing the overall risk of that portfolio.

Rebalancing is the exercise of periodically reviewing the portfolio to see where it has drifted away from its initial allocation and selling the positions that have become overweighted. The cash proceeds are then used to buy more of those positions that had become underweighted.

While rebalancing neither assumes a profit nor guarantees protection against a loss, it serves two important functions.  It helps to manage portfolio risk by ensuring that better performing and potentially more risky positions do not become too great a portion of the portfolio.  It also serves as a discipline to buy investments when they are cheaper and sell those when they are more expensive.

UMA accounts typically offer to automatically rebalance the portfolio based upon prescribed triggers (e.g., when a position is plus or minus 10% from its initial allocation) and on a periodic basis--typically annually, though more frequent rebalancing may be available.

The future has indeed arrived with the advent of UMA accounts, and investors have every reason to be excited.

It is important that you understand the ways in which we conduct business and the applicable laws and regulations that govern us.  As a firm providing wealth management services to clients in the U.S., we are registered with the
U.S. Securities and Exchange Commission (SEC) as an investment adviser and a broker-dealer, offering both investment advisory and brokerage services.  Though there are similarities among these services, the investment advisory programs and brokerage accounts we offer are separate and distinct, differ in material ways and are governed by different laws and separate contracts.

It is important that you carefully read the agreements and disclosures that we provide to you about the products or services we offer.  While we strive to ensure the nature of our services is clear in the materials we publish, if at any time you seek clarification on the nature of your accounts or the services you receive, please speak with your Financial Advisor.

For more information, please visit our website at www.ubs.com/workingwithus.

 
The information contained in this article is based on sources believed reliable, but its accuracy cannot be guaranteed. This article is for informational and educational purposes only and should not be relied upon as the basis for a purchase decision.