Dimensional Fund Advisors Launches New Unified Managed Accounts (UMA) Platform for ETFs

What you need to know

The primary selling point of this UMA platform is its flexibility in building ETF-only portfolios using Dimensional's lineup of ETFs or non-Dimensional ETFs, or by combining ETFs with direct individual securities within a single account.

The UMA platform also allows for more personalized asset allocations by integrating different investment styles into one account. For instance, SMAs within the platform can be customized for individual ESG values, stock, sector, or country preferences.

Another key advantage of the UMA platform is its enhanced tax efficiency. The platform considers all holdings in the account at the tax lot level — meaning it evaluates individual purchases of securities rather than just the total amount — when rebalancing, tax-loss harvesting, handling cash raises, or gifts.  

Finally, Dimensional takes on the responsibility of managing operational tasks like asset allocation, tax considerations, and cash balance. This delegation allows advisors to focus more on client relationships and strategic planning, leveraging Dimensional's expertise in factor investing and portfolio management. 

Q&A with Dimensional

What spurred the creation of the UMA platform?

Dimensional has been managing multi-asset allocations for over 20 years. The move to lower the minimum investment for our SMAs from $20 million to $500,000 in 2021 garnered positive feedback and significant adoption—900 accounts across 200 firms.

This feedback highlighted a demand among advisors for a platform capable of holding a broader range of investments. Coupled with evolving technology and decreasing costs, this demand drove the natural evolution of our offerings into the UMA platform, reflecting ongoing dialogue from advisors.

What were some of the pain points with SMAs' the UMA platform addressed?

The UMA platform directly addresses the challenges advisors face in delivering personalized solutions to clients. In traditional SMAs, while a direct equity sleeve allows for personalization through customized tax management and alignment with client values, it can be complex when clients also hold ETFs.

Our UMA structure enables advisors to consolidate these into one account and outsource the day-to-day management of allocations and cash flows to Dimensional. This integration provides the customization clients seek, but through a more scalable and efficient platform."

What prompted Dimensional to allow non-Dimensional ETFs on the UMA platform?

While our own SMAs and ETFs provide comprehensive portfolio solutions, we recognize that advisors may have unique considerations and circumstances for their clients that require other options.

Including over a thousand non-Dimensional ETFs enhances the UMA platform significantly, offering advisors ample flexibility in portfolio diversification and customization. Our priority with the UMA platform is to empower advisors to serve their clients in the best possible way.

Can you elaborate on the tax management capabilities of the UMA platform?

A unique aspect of our platform is that the same manager provides both the SMA sleeve and the ETF model tax management overlay.

This integration allows for seamless interaction—when I rebalance within the ETF sleeve and generate a capital loss, I can then rebalance within the SMA sleeve and realize an offsetting gain, maintaining the target asset allocation in a tax neutral way.

This integrated approach enhances our ability to manage cash flows and avoid wash sales, allowing us to consider every tax lot daily. It's more than just tax loss harvesting; it's about managing dividend income and responding proactively to client needs such as cash raises and gifting.

What can advisors expect in the future when it comes to the UMA platform's features?

Looking ahead, one of our first priorities is to include mutual funds on the UMA platform, which is a high priority for us. We're also enhancing our model management capabilities. At launch, advisors can build ETF-only models for their clients, which we will manage according to their specifications.

We also plan to build in functionality that will allow advisors to select Dimensional Wealth Models on the UMA platform allowing advisors in the future to subscribe client accounts directly to these models, with us handling all rebalancing and management within the UMA framework."

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.