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The Advantages of a Separately Managed Account

By Brian Famigletti, Managing Director & Head of Marketing

What is an SMA?

A separately managed account (SMA) is a customized, individual account that holds stocks and bonds that are individually selected just for you, the investor.

Unlike funds that pool the assets of numerous investors, an SMA implements your unique investment strategy via an independent, curated portfolio of directly owned securities. The result is a solution uniquely aligned with your personal financial goals. This differentiates the SMA from the one-size-fits-all structure of pooled vehicles such as hedge funds, mutual funds, or ETFs.

With SMAs, you may avoid some negative portfolio outcomes dependent on other investors’ panic selling or high-turnover trading. Still, you’re not totally immune to overall macro market movements, depending on what securities you hold.

Ideal Candidate for an SMA

Not every investor needs a customized solution. This account option is best for those with substantial investable assets, ideally millions. That said, for investors who want more control over their money, the SMA may be a good match.

Imagine you are investing the assets of a foundation with specific environmental goals. An SMA could provide hyper-specific customization of investments that align with your foundation’s values.

Individuals and organizations alike can benefit from personalizing their holdings while managing their tax liability. This level of customization isn’t possible with pooled funds.

What benefits does an SMA provide?

The flexibility of an SMA gives it several key advantages over pooled funds, including:

  • Fee transparency: Pooled investments can have several layers of fees due to their outsourced management, such as 12b-1 fees, front-end loads, or DSCs. In contrast, SMAs typically charge a fixed-rate management fee.
  • Alignment with goals and risk tolerance: An SMA is yours to design in accordance with your time horizon, cash flow needs, and tax situation. This can be accomplished by adjusting factors such as the number of securities held, diversification by sector, and market cap targets. If your goals change, your portfolio can, too.
  • Customizable security selection: With an SMA, you can direct your portfolio down to the stock. You can choose to invest in companies you support and forego investment from those you don’t. With an SMA, you decide which stocks or sectors to exclude or include.
  • Tax-loss harvesting: You can snag a tax break and keep more of what you earn by selling underperforming securities and using the loss to offset capital gains on outperforming securities. In an SMA, unlike with pooled assets, individual stocks may be traded to implement this strategy.

An SMA can offer a highly personalized investment approach that grants the investor power to direct security selection, fee structure, and tax exposure. Interested in investing via an SMA? The advisors at Griffin Asset Management can help you design a portfolio to match your unique needs and objectives.