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Why Wealth Management Firms Need Better UMA Billing

May 26, 2020 |


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Fee-based advice has been growing steadily for the past twenty years despite fee compression driven by robo-advisors and passive management strategies. This has pushed wealth management firms to start looking for ways to make their managed account programs stickier (less likely for clients to leave) and provide added value, both in service and performance.

Unified Managed Accounts (UMA) programs were the perfect fit to solve these problems. They enabled wealth management firms to hire external managers at an affordable cost, while reducing the overall costs of multiple custody accounts. These benefits have led to strong growth in assets as they have grown from $119 billion in 2010 to  $993 billion by the end of2018. Cerulli Associates projects that assets in UMAs will nearly double by 2022 to an estimated $1.85 trillion. However, UMA programs are complex and require a billing system that can effectively handle their multi-class, multi-party functionality, which bring a diversity of fee schedules and computational approaches.

Studies have shown that the most efficient way to process UMA accounts is with dedicated billing software specifically designed to work with UMAs. One-size-fits-all portfolio management platforms are often unable to support the complicated calculations and configurations associated with the variety of billing arrangements supported by UMAs. A specialized billing tool may be able to solve this dilemma, but research should be done to make sure that such a solution is compatible with the firm’s existing practice management software.

The characteristics of a robust UMA account billing solution correspond to four major trends driving the development of cutting-edge billing software. These are:

  • Accuracy
  • Timeliness
  • Control checks
  • Auditability

This paper will first explore the factors behind the growth in UMA assets, then dive into best practices for UMA billing. Next, it will explore the factors driving complexity of UMA account billing and analyze the problems one-size-fits-all solutions often experience with UMA billing. Finally, it will look at how specialized billing systems efficiently handle UMA billing and the benefits firms can derive from them.

Factors Behind the Increasing Popularity of UMAs

Advances in managed account technology have enabled a wide range of firms to deploy UMAs that weren’t able to before. And as the number of UMA platform providers has increased, the price of running UMA platforms has decreased. This has made UMAs more attractive to independent advisors and firms that couldn’t afford to offer UMAs. Now, the technology has advanced to the point where such programs are available to both wirehouse brokers and independent reps via third-party investment platforms.

In addition to new technology, there are a number of other factors that has increased the popularity of UMA accounts.

Low-cost and Zero Commissions

The advent of zero commission stock trades that were pioneered by startup stock trading app Robinhood was thought of as an aberration that would eventually drive them out of business. But instead, the rest of the industry followed suite after a surprise announcement from the largest RIA custodian, Charles Schwab, that they were eliminating commissions. This has made it more difficult for advisors to use commissions as their primary source of revenue, which has quickened the pace towards asset-based fees. Regulators have helped pave the way by linking fee-based accounts to the fiduciary standard. They have also stressed that advisors must demonstrate that they are providing value for the fees they charge. This reinforces the benefits of UMAs, since they enable advisors to deliver customized solutions for all of their clients without sacrificing scale.

Holistic Planning

Holistic financial planning focuses on addressing the real-life issues behind a client’s financial goals, rather than simply running the numbers to see if the goals are feasible. Advisors have been turning to more sophisticated software to deliver on the promise of holistic financial planning for their clients.

In a recent survey, 68% of fee-only advisors, 60% of dually-registered advisors and 44% of brokerage advisors were using such technology, which is often complex and detailed in scope.[1]

This more personalized approach can be enabled with a UMA account, which has the flexibility to support a wide variety of asset allocation strategies and security types. Some UMAs even support annuities and other insurance products either as a wrapper to provide guaranteed returns or embedded in the account itself.   Portfolio Customization

Separately Managed Account (SMA) strategies allow advisors to demonstrate added value by offering customizable portfolios run by highly regarded asset managers across different asset classes. Even though the percentage of assets in UMA accounts held in SMAs has been dropping steadily for the past 15 years, they still makeup around 30% of the total.[2]  UMA’s allow SMAs to be managed at scale while creating the optimal mix of strategies for each client.

The wide variety of holdings and account types that can be included in UMAs makes them excellent vehicles for the type of portfolio customization that can help wealth managers differentiate themselves from the competition and demonstrate their value add to clients.

Why is UMA Billing so Complex?

Along with all of the positive features of UMAs comes a potential negative – the complexity of the billing process. There are a number of underlying reasons behind this.

Multiple Asset Classes

While operations staff like UMAs for their ability to scale up to support hundreds of thousands of accounts, they add complexity to the billing process. In some cases, there are different billing approaches and fee schedules applied to individual equity positions that are part of an SMA versus income-generating assets such as fixed income or real estate. Tracking these differences within a single billing routine can be a complicated process.

Multiple Third-Party Managers

Any UMA billing system needs to support separate fee schedules for each money manager on the platform, to calculate fees and return the analysis of how the fees were calculated. But it is not uncommon for even the largest sponsor programs to have some manual steps in the middle of their billing processes, which can lead to miscommunications and errors.

UMA sponsors should provide a high level of transparency in their UMA sleeve billing so their investment managers can easily identify billing discrepancies.  This includes both underpayment and overpayment of managers.

Cash movements across sleeves

A best-of-breed UMA billing system must be able to capture sleeve level cash flows to ensure that manager payments are correct. This includes deposits, withdrawals, dividends, interest and cash movements due to portfolio rebalancing.

Best Practices for UMA Billing

Given the complexity involved with UMA billing, what are some best practices firms can follow to optimize their billing results?

Handle billing at both the household and individual account level

Because a household is often made up of different types of accounts, there may be occasions when different billing rules apply to accounts across the household. To properly account for these variations, a billing solution needs to be able to customize billing at both the household and the individual account level. Additionally, this must be done taking into the overall assets of the household to determine the appropriate fee rates for each account.

76% of managed account sponsors consider household-based pricing to be a very important characteristic of a unified program.[3]

Multi-Manager Billing

Since a UMA can hold many different SMAs, the billing system must accurately calculate the fee for each investment manager, which many times is driven by investment strategy selection. Moreover, sponsors often have separate contracts with each manager that offer asset-based tiers that reduce the fees at certain asset levels. These asset levels sometimes reference individual account level assets, but other times references household or overall manager level aggregated assets. This adds a complicated layer onto an already complex process.

Billing Exclusions

Similar to fee schedules, billing exclusions can also be applied at the household, account or sleeve level. For example, an account might hold a stock position that a client has held for years and has no intention of selling because of the tax consequences. The advisor will often exclude the stock from billing since it is not being actively managed. Billing exclusions can also take the form of entire asset classes such as cash and cash equivalents. When multiple clients have multiple exclusions of different kinds, tracking them all can be challenging.

Communication between operations and sales

While landing new business it is essential to ensure that salespeople understand the limitations of your billing system well enough to communicate it to clients. Without this training, a salesperson might incorrectly promise a client that their fee will decrease after reaching a certain asset level, or that some assets will be excluded from billing.

While many such scenarios can be handled by a firm’s billing systems, as their numbers increase, so do the chances that Sales is making promises that can’t be kept by Operations. As a result, periodic billing training for salespeople is highly recommended to avoid unpleasant conversations with disappointed clients – or off-book workarounds that increase regulatory and reputational risk.

Difficulties All-in-One Tools Can Encounter in UMA Billing

While a comprehensive practice management software platform can offer a robust set of broad functionalities, these solutions may encounter difficulties when it comes to UMA billing. Such challenges generally stem from the wide variety of variables and use cases present in billing for different households and individual accounts.

Comprehensive functionality can limit flexibility

While all-in-one portfolio management tools can often handle varied billing scenarios, these scenarios tend to be designed to work at the account, and sometimes household, levels. At other levels such as sleeve, manager, and investment strategy, these tools fall short.

While these tools can be convenient solutions for practice management functions such as executing trades, accessing client information and portfolio analysis, they are unlikely to be able to offer the same level of billing functionality as a specialized solution.

Living in the specifics of managed accounts

All-in-one tools may be unable to provide the required granularity at the billing level. This includes aspects touched on previously, including handling separate manager sleeves, asset exclusions, and billing at the household and individual account level. Additionally, feeds that are outside of client control (i.e. custodian) are often left out of calculations with less sophisticated billing solutions. This can lead to workarounds such as manual processes in Excel, adding significant time to the process and increasing the chance of errors.

Convenience over comprehensive support

In addition to the challenges already mentioned, billing that applies across a variety of parties and classes can be challenging for a non-specialized tool because of the many parameters and varied computational methods that are typically involved in UMA billing. These tools can also experience difficulty calculating wealth management firm fees during account onboarding or termination. These accounts lifecycle events, and others such as asset flows and manager changes, require specific logic and processing that is often beyond the competency and expertise of non-specialized billing software.

An inability to handle complex scenarios such as these can lead to a range of errors, the most common of which is missing or inaccurate fee adjustments related to intra-period lifecycle events.

Creates “special handling” for complex accounts involving manual fee calculations outside of the automated billing solution, thereby introducing financial and reputational risk.

Special handling workarounds required due to a lack of billing automation may run afoul of regulatory requirements, which can lead to fines. Regulatory penalties can also include other measures that require changes to a firm’s billing practices, among other potential strictures. Additionally, the reputational damage from publicity of regulatory penalties can lead to a loss of business that can far exceed any fines a firm might be charged in overall financial impact.

How Specialized Solutions Can Optimize UMA Billing

Specialized billing solutions handle the challenges involved with providing comprehensive billing services for UMAs in a variety of ways.

Integration with custodians and data aggregators

A specialized billing solution can efficiently acquire asset value data when they can integrate with custodians and data aggregators for direct asset management feeds. Such solutions typically offer APIs that can be used seamlessly with major practice management platforms and to interface with data aggregators. This allows wealth management firms to get the best of both worlds – the convenience of comprehensive practice management software and access to a specialized billing solution optimized for challenging billing scenarios such as UMAs.

Specialized Expertise

Given the multi-asset, multi-manager format of UMAs and other investment products, a significant amount of subject matter expertise is required to cover the full spectrum of billing scenarios. A specialized billing solution will be more likely to gather the information necessary to handle these scenarios in a timely and cost-effective manner.

Regular System Updates

Because they are strictly focused on billing, specialized solutions can invest the time and money required to keep their billing functionality current with the latest industry trends and standards. They are also able to continually innovate and improve the efficiency and utility of the features they offer. As billing practices such as fee schedules, sleeve composition and other factors change, specialized billing solutions are better equipped than all-in-one solutions to stay on top of these changes.

Flexible Architectural Design

Flexibility in the design of specialized billing solutions enables them to effectively integrate with external client platforms, such as CRM, portfolio management tools, and data warehouses. This feature allows wealth management firms to benefit from the robust functionality such solutions offer in conjunction with their existing practice management software.

Advanced features

True-up revenue vs estimates: By trueing up billed fees against associated accrual estimates, a firm can more effectively manage their revenue recognition and reporting process. Variances between the two numbers often occur due to the differences in asset valuations between when an accrual was run and actual billing is calculated.

Revenue forecasts: The calculation engine underlying sophisticated billing solutions can provide revenue forecasts based on accrual calculations. By performing calculations across different time frames, they can offer more precise forecasts.

Auto create accruals: Bringing in asset valuations and lifecycle events from previous periods enables an advanced billing solution to automatically create an accrual, whereas less sophisticated software can only base an accrual on a prior bill.

Benefits of an Optimized UMA Billing System

An optimized billing system offers a number of advantages for wealth managers. These include:

Improve advisor productivity

By freeing advisors up from having to personally oversee and stress about the billing process, firms can improve advisor productivity. While all-in-one solutions can provide time-saving convenience for advisors, when they fall short in the billing process this can negate any such advantage by tying up an advisor’s time in explaining to clients what went wrong and working with the operations department to fix billing errors.

Increase revenue

A specialized billing solution can more than pay for its cost by enabling firms to focus staff effort on tasks that help bring in and retain key business. Devoting valuable staff time to the minutiae of the billing process is a suboptimal use of employee time. By smoothly handling the complexities of the UMA billing process, an optimized billing system frees up a firm’s advisors and support staff to focus on activities that help generate revenue such as managing assets, increasing alpha, and building client relationships.

Reduce Operational Risk

By automating and auditing complex billing processes and eliminating manual processes that are prone to error, an optimized billing system can help reduce operational risk. This includes scenarios where errors in the billing process are made which pose client retention, reputational and regulatory risk. The billing process is at the heart of the client relationship for wealth managers, with clients ever more fee-conscious due to the continued cost compression in the asset management industry. With clients highly attuned to the wealth management firm fees they pay, this is an aspect of a firm’s operations that deserves special attention. Using an optimized billing solution that reduces operational risk can pay dividends to firms in terms of improved operational performance, with all the associated benefits such performance brings.

Fee-Based Account Trend Drives Need for Specialized Billing Solutions

The trend towards fee-based managed accounts which has helped boost the popularity of UMAs doesn’t appear likely to wane anytime soon. As fee compression challenges asset managers to justify their fees, the ability of UMAs to offer a diversified selection of investment options makes them highly attractive to advisors and clients. However, the flexibility and breadth of investment offerings that UMAs feature can present challenges for less sophisticated billing solutions.

This paper has outlined both the challenges such solutions face and the ways in which specialized billing solutions can overcome these hurdles to enable UMA platform providers to optimize their billing system. By utilizing a specialized billing solution which integrates with its CRM or other practice management platform, wealth management firms can continue to benefit from the convenience and client appeal of UMAs without sacrificing their ability to optimize the process of billing for their services.


[1] CNBC: Technology helps advisors take financial planning to the next level for clients (2019)

[2] Source: Cerulli Associates

[3] Cerulli Associates U.S. Managed Accounts 2019