How have Unified Managed Households (UMH) been evolving in wealth management? What are the essential elements of UMH? Which segment of the industry has been leading with new UMH feature deployments?

These questions and more were discussed during a panel session at the 12th Annual Managed Account and UMA Summit, organized by Financial Research Associates, LLC and held in September in New York City.

The moderator was Alois Pirker, Research Director, Aite Group.

The Evolution of UMH

UMH has not evolved as quickly as it could because it was not high on the list of features requested by most customers, stated Simon Algar, Consultant, Wealth Reports. Since technology vendors build what their customers want, UMH was put on the back burner. Also, the financial crisis reduced everyone’s budget and wallets did not open up again until 2010, he pointed out.

The panelists noted that the UMH goal has been the “North Star” of wealth management technology for the past few years. But the question we should be asking ourselves is,” what are we trying to achieve?” Everyone can say they have UMH, since there is no universally agreed upon definition. Most industry observers would agree that it must operate at the household level, support multiple asset classes and solve for location and registration concerns.

The Essential Elements of UMH

One panelist observed that Apple’s product ecosystem operates like a UMH. Their phones, tablets, computers, even their new watch all work seamlessly together. In comparison, the wealth management industry is lagging behind in integration and coordination across products, he stated.

UMH is a concept of delivering on planning capabilities, removing the inertia and behavioral conflicts that keep clients from doing what we ask of them. We need to make it easy to deliver advice.

One of the reasons why it took the industry so long to focus on providing UMH was because the requirements have been a moving target, noted Tirdad Shojaie, Head of Product, Marketing & Strategy, Investment Services, Fiserv. To overcome this, Fiserv has organized UMH functionality into a framework with four primary components:

Client Profiling – Includes client goals and data aggression

Planning and Advice – Portfolio Management and Investment Services – create services around a platform, make better judgments

Portfolio Management – Trade Generation, Trade Management and Portfolio Accounting

Reporting & Billing

Without planning, UMH becomes just the integration of multiple accounts to accomplish an objective, a panelist from TIAA-CREF Financial Services pointed out. During the accumulation phase on investors’ lives, there should be course corrections that are based on the results of the annual review. How are they doing relative to their goals? As more people transition into retirement and their distribution phase, there is almost no ability to course-correct. This requires an efficiency of execution and there is a value proposition that can be supported by UMH, he stated. (See Unified Managed Households: The Holy Grail of Wealth Management?)

Platform Consolidation

Platform consolidation is a growing trend that leverages UMA technology to support a multitude of programs, Algar suggested. Firms that currently need different systems for different programs can consolidate them all on their UMA chassis, he stressed.

Running all of your programs on the same platform reduces support costs, since only one system needs maintenance, updates, etc. It also reduces advisor training time, because there is only one user interface. Finally, since the UMA encapsulates other programs inside separate sleeves, no paperwork is required when switching between programs. This provides a better client experience, in my opinion.

Following the Wirehouses

It seems that everyone is following the paradigm of how the wirehouses approach wealth management, Algar observed. Bank of America Merrill Lynch and Wells Fargo are consolidating their platforms and breaking down silos, he said. (See Merrill Streamlines Their Platform To Deliver UMH for Clients)

While wirehouses have the most to gain, diversified investment management firms such as Capital Group, USAA, and Vanguard have a wide range of accounts they can bring together and increase scale, Algar stated.

Banks are finally waking up and expanding their wealth management services, he continued. JP Morgan Chase is doing a phenomenal job bridging the gap between investing and planning. Banks that can emulate this will gain a profound advantage, he predicted.

While the wirehouses typically lead in terms of an overall direction, broker-dealers are investing a lot to improve their technology, Shojaie countered. Fiserv customers have been moving towards more horizontal integration and open architecture, with more discussions now about vertical integration of their unified wealth platform, he stated.

TIAA-CREF launched their UMA later than most others in industry, it was noted. This gave them the luxury of not being tied down to a legacy system. They can layer in services and capabilities as advisors and clients become more sophisticated, which facilitates their path to a full UMH, he stated.

TIAA-CREF is different since their client relationships mostly start on the defined contribution side of the ledger. As client assets grow, they naturally migrate over to the wealth management side of the business.

UMH Component – CRM

The next challenge is completing the work to integrate CRM into the wealth management platform, Algar proposed. As the container for accounts and households, CRM should be the driver of disruptive change, he stressed.

Customer relationships usually extend across products, so households must be tied into an enterprise-wide CRM, Algar continued. Only a small number of firms are doing this, such as Orion and Tamarac on the RIA side and Envestnet on the broker-dealer side, he noted.

UMH Component – Data Aggregation

Data aggregation is a key component of a complete UMH solution. Products such as CashEdge (bought by Fiserv in 2011), ByAllAccounts (bought by Morningstar this year), eVare (bought by SS&C in 2009) and Yodlee (still independent) can vacuum up data from 10,000 different financial institutions, aggregate it and deliver it into the wealth management platform. This view of held away assets is a powerful tool for advisors to view a client’s entire household and to increase revenue by charging advice for assets they do not custody. However, many firms still do not provide data aggregation services as part of their offering. (See Why Don’t Advisors Have Tools to Provide Holistic Advice?)

Availability of quality data is one of the biggest roadblocks for aggregation vendors, Shojaie claimed. Cleaning the data and ensuring that it is accurate requires tremendous effort and diligence. Compliance departments are wary of approving any aggregation vendor that does not have proof of a very low error rate, he said.

TIAA-CREF does not currently offer data aggregation, but they are looking into it, we were told by the panel member from the firm.

“How do you monetize a 360 degree view of client accounts?”, he asked. What you do with it is important, he stressed. Switching from an overnight batch process to a real-time data model will enable more of a dashboard driven experience, he said.

An audience member representing the distribution side said that it seems absurd that everyone doesn’t have access to this kind of data. Investment firms should provide direct feeds into the proposal generation system and also for ongoing performance evaluation, he proposed.

Goals-based financial planning is just another way to refer to a defined benefits plan that has been around for decades, he pointed out. The firm that gets this right will win and will gain significant assets.

What is holding the industry back from delivering UMH?

The biggest anchor weighing down industry efforts towards true UMH is random legacy architectures that do not make sense, Algar suggested. Also, Rigid organizational constraints, over-zealous compliance departments and senior management missing revenue numbers all contribute to reduced technology budgeted towards UMH spending, he surmised.

Organizational and cultural roadblocks are the biggest obstacles, the TIAA-CREF panelist suggested. Having built the UMA platform at his firm, he learned that there must be seamless integration between the advice and planning process. Everything must be managed in one place to achieve your objectives. Portfolio construction can not be separate, he said.

Where will technology dollars be spent?

It is important to do your research before placing a bet on the direction of technology spending, Algar warned. While client experience and practice management spending have shown tangible improvements, significant UMH spending has not occurred yet, he noted.

Technology vendors tend to go where the money is being spent, Shojaie commented. Once clients begin requesting UMH and budgeting for it, more vendors will offer it. However, vendors should be careful not to impact their platform scalability when adding UMH features, he said.

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