top of page
  • Matthew Levy and Ariel Shlien

The Value of an SMA (Separately Managed Account)

Updated: Jan 14, 2021

A Separately Managed Account provides a unique investment opportunity for individuals looking to increase their net worth through investing. It gives investors better control of their portfolio and gives them access to expert managers who manage their funds. Unlike other investment avenues like mutual funds, SMAs provide numerous advantages that make them suitable, especially for specific investors. This article will highlight some of the attractive features that it offers and why investors should consider investing in such accounts.



Separately Managed Account, SMA


The account in an SMA is in the name of the investor

Having the account in the name of the investor ensures better control of funds managed in the SMA. It ensures that the trading activity has some controls in place, and the movement of funds of securities within and outside the fund is restricted. It also enables the account holders to track the account's activities along with the current holdings on a real-time basis. This is not possible to track for individual holding units of a fund investment because every transaction is not publicly available. Administrators of the fund also have access to the accounts through channels like API. This reduces the chances for fraud as administrators can independently verify the NAV and report all the trading activities. Investors can directly reach out to administrators to determine the value of the portfolio value within the SMA.


Better management of individual portfolios

Pooled vehicles like hedge funds or mutual funds do not cater to the preferences of individual investors. The fund manager has a general objective that would not consider the investment objective or the risk appetite of every investor. Unlike such funds, SMAs are fine tuned to address the investment objectives of the individual specifically. There may be a caveat of minimum investment amount that could restrict small investors from investing in SMAs, but those who can manage the lump sum amount can avail of this benefit. It helps investors manage their portfolios in a better way. For example, an employee with significant exposure to ESOPs can exclude these securities from the SMA. There are numerous investment propositions (like ESG-SMAs) from which investors can choose.


Multiple tax benefits

One of an SMA's characteristics is that it can allow selective buying and selling of securities within an account. This creates an opportunity for tax-loss harvesting that can save a significant amount considering the minimum corpus size required. In a pooled vehicle like a mutual fund, the tax liability is common for all the investors that could be disadvantageous for many investors. Let us say that an investor invests in July in a fund that has its underlying holdings appreciate by 20% from January to June. Even if the value remains flat for the remaining part of the year, the investor is exposed to the tax implications for the 20% rise in value. Such complications do not arise with SMAs, and tax computation can be based on a cost basis.


SMAs have drawn criticism over their high management fees and minimum investments targeted at high net-worth investors. With technological advancements in place, managing portfolios has become easier and this is expected to reduce the cost and the minimum amount required. That said, retail investors with a reasonable net worth can utilize SMAs to customize their portfolios more efficiently with the help of an experienced professional.

315 views0 comments
bottom of page