I am part of what may be a frontier in investment products – SMAs or Separately Managed Accounts. These have been around for decades, but are now finding favor as a smart alternative. SMAs, have grown by 84% since 2010, according to a report by Morgan Stanley titled “What’s Behind the Surge in Separately Managed Accounts?”
Per Investopedia:
The investment management world is divided into retail and institutional investors. Products designed for middle-income individual investors, such as the retail classes of mutual funds, have modest initial investment requirements. Managed strategies for institutions have imposing minimum investment requirements of $25 million or more. Between these ends of the spectrum, however, is the growing universe of separately managed accounts (SMAs) targeted toward wealthy (but not necessarily ultra-wealthy) individual investors. Whether you refer to them as “individually managed accounts” or “separately managed accounts,” managed accounts have gone mainstream.
It is basically a personal brokerage account, yours to do with as you wish, run by one or more fund managers of your choice. And you can customize this “fund” in various ways to be your personal mutual fund. They can be a Roth or any tax advantaged type you want. SMAs are a smart alternative to mutual funds, where you must pay taxes on your gain every year. But with an SMA, you can make your account tax free where you can let all the gain compound year after year and not have to fuss with it at tax time. They must be run per SEC safety rules for diversification and investment type, long stocks only.
Another tax advantage with an SMA is the fact that when you buy shares of a mutual fund, you are penalized for the tax accrued by any gain on the fund going clear back to the first of the year, even though you didn’t own those shares then. The fund gives just one tax statement for all holders each year. You can only fix that problem by purchasing fund shares on January 1st. However, with an SMA that is taxable, you are liable only for gain on the new purchases in your account, like any brokerage account.
SMAs have grown US Assets from 396 Billion in 2000 to over a $trillion now. That’s about 6% of the mutual fund/SMA pie and growing fast. Where did SMAs come from? Per the Wikipedia account::
SMAs were developed in the 1970s to accommodate accounts and clients who needed to meet specific objectives that did not fit within the constrictions of a mutual fund investment. It is the freedom of choice of professional managers, portfolio customization, objective investment advice for a set fee, diversification (or concentration should the client choose), tax efficiency and general flexibility that have made SMAs popular among informed investors.
