Envestnet’s ENV2 Platform Delivers New UMA Features

Sliced bread.  The electric light bulb.  Indoor plumbing.  Unified Manged Accounts (UMA’s) were supposed to be better than these revolutionary inventions and a whole lot more.  They still have not lived up to their hype, but UMA’s have become a standard offering for all managed account platforms.

In this summary of a session from Envestnet’s 2014 Advisor Summit, a panel of experts provides updated information about the Envestnet UMA program including how the program has changed over time, coordinating and updating UMA models, building performance composites and other exciting, new features.

Moderator: Jeff Nicholas, Senior VP, Product Management, Envestnet
Panel: Daren Evans, Sr. Research Analyst, Hightower Associates
Joel Floum, VP, Investment Advisory Programs, US Bancorp Investments
Jim McCormick, Principal, Pryor McCormick Investments

New FeaturesEnvestnet Composites in ENV2

Nicholas demonstrated some new features that will be available only on the ENV2 platform.  These included Performance Composites for Models, Managed Overlays and Household Rebalancing.

Performance Composites are standardized measurements of the performance of an advisor-directed model.  They will be very helpful to advisors who excel at investment management and are interested in offering their models to other advisors.  This feature automates a lot of the back end work in generating accurate composites such as includingexcluding accounts based on selection criteria, calculating performance relative to a benchmark and then displaying it as both a graph and in tabular format.  It also provides a well-designed user interface (see screenshot to the right) that provides advisors with a compact overview of their composites that makes it easy to see statistics such as total assets by composite, number of portfolios and risk ratings.

Managed overlays are essentially model templates made up of asset classes or individual securities that can be used as a guide when building UMA or APM models.  Firms that centralize their model management in the home office will appreciate this feature since it allows them to push standards out to the field, but still provides some flexibility for advisors.  Constraints can be set to control how much an advisor can deviate from a position’s assigned target weight, if at all.

Household Rebalancing

This is essentially rebalancing with intelligent asset location.  It is currently only available in Beta in their APM product, but there are plans to extend it to UMA as well.  A single model can be assigned to all the accounts in a household, even if they have different tax registrations.  The rebalance engine will try to minimize tax impact by placing securities into either taxable or non-taxable accounts.  This is a feature already available on competitors platforms, so it is good to see Envestnet catching up in this complex area. (See Which Portfolio Rebalancing Software is Best for You?)

What are some of the benefits of a UMA?

According to Nicholas, who is Envestnet’s product manager for their UMA and Rep as Advisor products, the latest Cerrulli report showed that there were around $300 billion in UMA assets at the end of the fourth quarter of 2013.  UMA market share grew 35% in 2013, while assets are projected to grow to $549 billion by 2016, he said.

UMA reduces the amount of paperwork clients have to deal with by providing a single account statement, McCormick stated.  In the past, if an advisor chose six money managers for a particular client, they would receive six different statements in the mail.  With a UMA, this is consolidated into just one, he said.

Operational simplification is another benefit of a UMA, Floum explained. Wirehouses are building and deploying UMA’s as an umbrella for all accounts, whether they have multiple sleeves or not.  This reduces the number of different platforms they have to maintain and delivers a consistent client experience, he stressed.

US Bancorp Investments, based in Minneapolis, MN, is the brokerage and RIA arm of US Bancorp. They have been using what Envestnet refers to as “UMA v1” and are based on Envestnet’s managed portfolios.  In the near future, they plan to launch Envestnet’s UMA v2 in order to offer discretionary assets to their 530 financial advisors who are spread across 25 states, Floum announced.  (See 6 Keys to Launching a Successful UMA Program)

How has Envestnet’s UMA evolved?Envestnet UMA Evolution 2

Envestnet’s UMA offering has evolved over the past few years, Nicholas explained.  They started with a Multi-Manager Account (MMA), which then morphed into UMA v1 and now UMA v2. The main differences between the version is in their flexibility offered to advisors to change asset allocations and product selection. MMA was locked for both; UMA v1 had flexibility in product selection only; UMA v2 has flexibility for both, he reported.

Some of the services provided by Envestnet as an outsourcer include overlay management and trading, Nicholas continued.  These services are handled primarily from their Denver office, where he is based.  These offerings can free up advisors’ time, service request infrastructure makes it easy to raise cash, compliance support and monitoring.

What aspect of Envestnet’s UMA make your business more efficient?

The consolidation of what were formerly separate accounts under a single registration, with model management, greatly improves operational efficiency, Evans claimed.  Trading in the days before model-based UMA’s required multiple time-consuming steps that could sometimes take up to five days, he said.  Now, it can be done with the click of a button.  (See RIAs Take Advantage of Discretion to Launch UMAs and Improve Efficiency)

The cash flow business management feature allows firms to automatically raise cash on a calendar basis and have it journaled into the client’s account, Evans added.  The automation of the tax-loss harvesting process also saves a significant amount of time that used to be spent communicating with money managers to sell the underlying securities and wire the cash back, he added.  This time savings is multiplied many times over at Hightower since they have 30 offices around the country with over 300 employees, 100 of which are advisors.

Advisors are freed up from having to manage individual accounts with a UMA and can control everything using model management, Floum stressed.  As the executive in charge of US Bancorp Investments’s advisory platform, he understands the benefit of being able to control all of the trading of the models, rather than relying on each of the separate managers to handle their own, greatly increases efficiency for the home office.

Being able to apply a single model across multiple accounts saves time, McCormick pointed out.  It is a tremendous help in scaling both sides of their business, the individual family practice and the corporate retirement practice. UMA enables them to use just 20 models to manage the portfolios for 200 clients, he noted.  (See Going Under the Hood of Models-Only Programs)

What investment strategies do you deploy in your UMA accounts?

Hightower, which was founded in Chicago in 2007, takes an asset-liability approach to asset management, Evans explained.  They use customized software to generate the required a rate of return objective and then assign the account to one of five model portfolios.  They focus more on return than risk since that’s what clients understand.

In contrast to Hightower, Pryor McCormick Investments, which is based in Birmingham, AL, assigns their UMA accounts to risk-based portfolios, McCormick noted.  These can comprise both tactical and strategic institutional money managers, although they also include some mutual funds.

The Envestnet platform has a wide variety of SMA strategies available, Nicholas described:

  • Over 550 Equity Strategies
  • 30 Fixed Income Strategies
  • Over 700 Fund Strategist Portfolios (FSPs)
  • Unlimited Advisor Sleeve Models

UMA v2 Supports Models of Models

US Bancorp wants their advisors to be model managers, not account managers, Floum stressed.  This is why they they rolled out the Rep as Advisor product, which became very popular and helped to increase advisor revenue.  However, it turned out not to be scalable since there was no way to centrally manage the individual account models, he said.

This was all rectified with the launch of their UMA platform, Floum continued.  The firm has a robust product lineup in their UMA, which helps them to recruit and retain advisors.  They did not offer discretionary products before the launch of UMA v2, since they believed that their advisors could not take full advantage of Envestnet’s trading tools without full discretion over the accounts.  (See Current Challenges for UMA Sponsors)

Envestnet’s platform supports the creation of models of models, Nichols explained, which is a table stakes feature for a UMA program, in my opinion.  Envestnet calls them “Advisor Sleeve Models,” although most of the industry would refer to them as “sub-models”.

By creating a few sub-models and combining them in different percentages, you can create an almost unlimited number of master models that can meet a wide variety of target risk profiles.  This is a key feature required to ensure scalability and avoid being overwhelmed by model updates.

The system can be configured to automatically rebalance all accounts that are linked to a master model or sub-model, Nicholas pointed out.  Although, there are still guardrails available through the system, that the home office can place on the UMA v2 programs to limit what advisors can do, he added.

Fixed Income Models?

Something very interesting came up during the Q&A at the end of the session regarding fixed income trading in UMA’s.  Floum mentioned that his firm is working with Envestnet to support fixed income models.  They did not elaborate, but it sounds like characteristic-based models.  This is where a fixed income model can hold any bond as long as it meets predefined criteria such as maturity, interest rate, issuer rating, etc.  This could be a nifty feature for advisors that prefer actual bonds in their portfolios rather than ETFs.

Fee-Based vs Transaction-Based UMA Billing?

McCormick offered an interesting take on UMA billing.  His firm offers UMA’s that are billed transactionally, instead of fee-based.  While this might seem counter-intuitive, it would be a good option for accounts with very conservative that trade infrequently.

When his custodian bills him for ticket charges, he sometimes “plays the spread” and charges asset-based pricing to clients.  This would be profitable if the account has a fixed income manager that doesn’t trade very much.  Although, it is possible to lose money on the account if the manager decides to increase the number of trades.

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2 Responses

  1. Mike,
    Nice catch! Thanks for pointing that out. That wouldn’t make sense for their UMA v2 to go backwards on that feature, now would it? I updated the graphic to show “Product Select: Flexible” for UMA v2.
    Thanks again,

  2. Hey, great article, but I think your graphic on the three program types for Envestnet has an error. Shouldn’t the UMAv2 be showing the Product Selection as Flexible instead of Locked?



The Wealth Tech Today blog is published by Craig Iskowitz, founder and CEO of Ezra Group, a boutique consulting firm that caters to banks, broker-dealers, RIA’s, asset managers and the leading vendors in the surrounding #fintech space. He can be reached at craig@ezragroupllc.com