Hilliard Lyons (a Louisville, KY-based regional brokerage firm) announced last week that it was migrating its entire book of SMAs (separately managed accounts) onto its UMA (unified managed accounts) platform. While when UMAs were introduced many, including myself, felt that they would be extremely popular, their relative growth has been disappointing at many firms. Does this move by Hilliard signal that other firms will follow and that the long-forecast death of SMAs is near? Here are my top ten thoughts on this topic:
10 – I’ll start with the conclusion – no, we are not near the death of SMAs. The relatively small size of Hilliard’s managed accounts business ($100 million) makes such a change easier for them than it would be for larger firms;
9 – Other regionals will try to emulate Hilliard, and again, because of their relatively manageable size, they may be able to accomplish this task;
8 – Hilliard is keeping its dual-contract program – so while its “packaged” version of SMAs is going away, they are not abandoning the idea of separately managed accounts altogether;
7 – While I am a fan of UMAs, high-end advisors (especially on the institutional side of the business) religiously undertake the two main benefits of UMAs to clients manually – rebalancing and tax optimization – and will not be willing to give up these responsibilities;
6 – Money managers will continue to fight UMAs – not only because they get paid less but because they lose control over the trading of the accounts – and to many, while the jury is still out, the potential impact on performance worries them;
5 – The push to model portfolio-driven programs (like at Merrill) is not the same as the push to UMAs. Top advisors are still averse to programs where they lose control over making the asset allocation/investment decisions;
4 – If firms do consolidate their programs under fewer umbrellas, a single sleeve UMA is equal to an SMA. If the drive is to decrease the number of products, then perhaps the SMA as we know it today may fade – but the concept will not;
3 – When the growth of SMAs began, we saw money managers making the distinct choice of whether or not they wanted to be in that market. I think we will see the same again, with some managers deciding that it is not the place they want to be, while others will embrace the fact that they are relieved of administrative responsibilities;
2 – Any wholesale shift on the part of sponsors that will entail inconveniencing clients (and advisors) will be met with stiff resistance, especially in this environment; and
1 – You can’t force advisors to do what they don’t want to do! Or you can, but don’t be surprised if the results are not what you want.
I think the bottom line is that there will always be a place for SMAs. Top advisors thrive on differentiating themselves from others in the services that they provide. If a platform becomes too “product-like,” they will not use it. While automatic rebalancing and tax optimization sound nice, many advisors recognize that part of their value-added comes in providing these services themselves. Don’t expect them to give up that freedom without a fight.
