Adhesion Wealth Trumpets Account Model For Industry In Flux

Tom Burroughes

21 January 2021

There has been a steady trend of wealth managers defecting from wirehouses, banks and other firms to strike out on their own. Meanwhile, sector M&A activity shows that some advisors want to join hands with partner firms and win economies of scale. Making all these transactions fit snugly is certanly not a walk in the park.

One way to reduce the pain of change, cut costs and enable managers to give clients a good experience is through Unified Managed Accounts (UMAs), Barrett Ayers, president of . Obviously selling out positions create a taxable event,” Ayers continued. Advisors who want to join an independent firm and “tuck in” clients can find this easier to do, he said.

Unified managed accounts are managed investment accounts that have developed from separate accounts. Where a separate account holds the securities associated with a single investment manager or style managed for a client, a UMA typically holds a number of separate accounts, as well as other investment products such as mutual funds and exchange traded funds.

For some time, the industry has wrestled with how to customize offerings for clients without junking efficiency. Parts of the value chain need to be “industrialized” while giving customers their own specific experience at the front end. Ayers draws on the world of modern entertainment tech to illustrate the point. “Sometimes we liken our business to Netflix: We sell movies. We use a cool web-based interface for consumers to watch them (as opposed to Blockbuster or movie theatres,” he said.

“So advisors like the idea of managed accounts available and accessible through a ubiquitous platform like Adhesion, but then supercharging them by using the UMA structure which allows for things like customization, tax management, investor convenience, portfolio drift correction, cash management, lower-cost, and SMA access for smaller accounts,” he continued.

UMAs can also be more efficient for areas such as tax-management, he said. In older Separately Managed Account programs (such as single or dual contract ones, the advisor must open individual accounts for each SMA. That means that inside such an account, Manager A can sell IBM and manager B can buy the same security but in a different account. This is a “wash sale”, but this will not be known if the two managers aren’t talking. By contrast, when manager A and Manager B are put into the same account (UMA) and hire an “overlay manger” to oversee both managers, wash sales can be stopped, stripping out a lot of unnecessary cost, taxes and commissions.

“And given our bird’s eye view as an overlay manager, we have found that the overlapping position condition is highly prevalent - on average, Adhesion accounts have 17 of these types of common, overlapping positions where a holding is held across multiple managers and thus the likelihood to generate an unfavourable transaction is heightened dramatically,” Ayers said.