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News January 22, 2007 Issue

Survey: No Consensus on Treatment of Assets in UMA Program

Say your firm participates as an external manager in a Unified Managed Account (UMA) program sponsored by a major broker-dealer. Your firm provides a model to the UMA sponsor, which the sponsor implements on any cash balances placed in the program. However, your firm has trading responsibilities as well: As you adjust your model over time, you are responsible for implementing changes to existing accounts in the program. Both you and the UMA sponsor have your hands in the pot, so to speak.

How do you treat the assets in the program for purposes of calculating your firm’s assets under management on Form ADV? What about firm assets for GIPS purposes?

Last fall, Karyn Vincent of Vincent Performance Services began receiving a number of questions on these points, all centering around one particular UMA program. To protect innocent UMA program sponsors, we’ll call it the XYZ Program. To find out what folks were doing, Vincent conducted an informal survey of advisers that participated in the XYZ Program.

The results were quite interesting: People were all over the map.

  • Of the ten advisory firms that responded to the survey, six included XYZ Program assets in their ADV assets under management; four did not.
  • Of the six firms that included XYZ Program assets in their ADV assets, five placed them in the category of discretionary assets under management; one treated them as non-discretionary.
  • Five of the ten firms included XYZ Program assets as GIPS firm assets. Five did not.
  • Of the five firms that included XYZ Program assets as GIPS firm assets, three classified them as non-discretionary GIPS assets, while two classified them as discretionary.

Vincent noted the difficulty firms faced in deciding how to characterize the assets. One firm, she said, took over a year to sort through all the legal and compliance issues raised by the program.

Her advice to advisers facing similar issues: Read the UMA program contract carefully, consult with internal and external sources (compliance, in-house and outside counsel, GIPS verifiers), and document your reasons for characterizing assets as discretionary or non-discretionary assets under management and/or GIPS assets.