Inside Unified Managed Accounts and the Future of Personalized Investing

Amid compressing fees and mushrooming fund options, asset managers are clashing for market share in a new arena: personalization. Thanks to recent technological leaps, Dimensional Fund Advisors hopes to prevail with a newly accessible investment vehicle.

In September 2021, Dimensional Fund Advisors launched a new lower-minimum SMA platform, which together with the UMA platform launched in July 2024, now manages more than 1,000 accounts and nearly $3 billion in assets.

The Big Picture in Practice podcast asked two Dimensional experts about the move to UMAs. We welcomed Katie Hendrix, asset allocation research director and vice president, and Bryce Skaff, Co-Head of the Global Client Group.

Here are a few takeaways from the conversation.

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Separate managed accounts allow investors to directly own equities and bonds instead of a share of a pooled fund. Separate accounts are growing in popularity. Morningstar Direct covers more than 14,500 global separate accounts, and Cerulli estimates total SMA assets will top $2.2 trillion in 2024.

Unified managed accounts can hold different types of investment vehicles in the same account, including:

• Separately managed accounts.
• Mutual funds.
• Exchange-traded funds.
• Stocks.
• Bonds.
• Options.
• Commodities.
• Private market investments.
• Real estate.

Bryce compares unified managed accounts to a well-tossed salad.

“I'm a lover of Greek salads,” he explains. “The other option is to portion out a side of cucumbers, a side of tomatoes, a side of onions, olives, and spices. Greek salads put it all together in an efficient way for me to eat my vegetables.”

In the same way, he says, UMAs allow investors to consume what they want in a very efficient fashion. Investors can find a custom mix that bakes in their preferences.

Katie and Bryce tout tax management as a major benefit of unified managed accounts.

Katie thinks of UMAs as a “natural evolution” of Dimensional’s long-time focus on tax management. The firm has 20 years of expertise in running tax-managed accounts, refining its approach to trade-offs between asset allocation, premiums, costs, and tax-aware portfolio launches.

“More and more, advisors are going from investment advisors to full wealth management providers,” Bryce says. “Taxes are an incredibly important part of that for taxable investors.”

That level of tax management gets complicated, fast. Dimensional has over 1,000 accounts in its lower minimum platform.

“We look at 2.5 million tax lots every single day, and we process those in under five minutes,” Katie explains. “Our experience lends itself to and makes it possible to use that information to deliver better investment outcomes.”

Dimensional clients sometimes request direct indexing, a subset of separate accounts. The approach aims to replicate index performance with as little tracking error as possible.

Katie and Bryce say that direct indexing can lead to tax inefficiencies and hidden costs.

For example, if the Russell US Indexes remove securities from its list, which it reconstitutes each June, direct-indexed SMAs have to sell off those securities in one day. Recent Dimensional research found that index additions tend to rise in price ahead of when an index fund would want to buy, and deletions fall in price before an index fund would want to sell, while both show reversals after index reconstitution.

“We’ve never thought that’s a great way to approach someone’s investment solution,” Bryce says. “Not being so handcuffed to the index itself affords us an opportunity to design and implement a portfolio with an elevated experience.”

While Dimensional had the necessary infrastructure and investment skills, the UMA platform needed a refreshed tech stack. Dimensional opted to build their own interface.

Here’s how it works.

Through the Dimensional portal, advisors can configure investment specifications for a client account. Dimensional evaluates accounts daily for meaningful opportunities to manage cash, rebalance, and improve tax efficiency.

Internal systems consume that information and link it to the tax lots in the accounts to generate trades—“over 10,000 trades on average a day,” Katie says. Then Dimensional delivers reporting on the overall portfolio to clients. They can continue to improve the system based on user feedback.

With its revamped technology, Dimensional could scale its strategy to accounts with a lower minimum. In the past, UMAs were only available to high-net-worth investors with minimum accounts of $20 million or more. Dimensional’s current SMAs and the new UMA are open to investors with minimum account sizes of $500,000.

“As an example, in the UMA, you can have your direct equity sleeve, your SMA, and you can hold multiple ETFs,” Katie says. “By having our own technology, we can be more nimble and operationally efficient as we deliver tax management across all those levels.” 

The new UMA platform aims to add value over index-based approaches with the right amount of personalization. The structure supports client choices around preferences like:

• ESG interests. Investors can choose to exclude sectors that go against their environmental or social values.
• Employee stock options. If they have amassed stock options through incentives, employees could exclude additional stock to avoid overconcentration.
• Tax preferences. Advisors can choose their approach from a spectrum of options, based on an investor’s tax sensitivity.
• Legacy positions. Advisors can help clients move portfolio assets to Dimensional while being aware of their tax and investment goals.

But challenges crop up when adjustments move a portfolio too far away from its original objective. Too many individual tweaks could threaten to undermine intentional allocations for risk premia and diversification.

That means firms need guardrails to guide investors into the right portfolios for their goals.

“The level of personalization built into our system doesn’t mean we have a solution for every person all the time,” says Bryce. “We have a way that we think works to approach markets.”