A Separately Managed Account (SMA) is a personalized investment account managed by professional managers on behalf of a single investor, offering customized portfolios and direct ownership of securities.
A Separately Managed Account (SMA) is a private portfolio of individual securities managed by a professional investment management firm or advisor. Unlike mutual funds or pooled investment vehicles, SMAs are distinct accounts established for a single investor, offering tailored investment strategies aligned with the client’s financial goals, risk tolerance, and tax considerations. Investors in SMAs have direct ownership of individual securities rather than owning pooled fund shares, which provides greater transparency and control over holdings. SMAs are commonly utilized by high-net-worth individuals, family offices, and institutional investors who seek customized asset management solutions with flexibility over investment choices, tax management, and reporting. The management firm handles research, trade execution, and portfolio rebalancing, often under an agreed-upon investment policy that reflects the client's priorities. SMAs can cover various asset classes including equities, fixed income, and alternative investments.
Separately Managed Accounts matter because they enable tailored investment management that directly supports precise wealth management objectives, such as tax optimization and personalized asset allocation. Direct ownership of securities in an SMA allows for strategic tax-loss harvesting and specific security selection, which can improve after-tax returns compared to pooled funds. Moreover, SMAs provide enhanced transparency and detailed reporting—critical for governance and compliance in family offices and wealth management. The customization inherent in SMAs facilitates alignment with complex investment policies, liquidity needs, and risk profiles. This supports better investment decision-making and more effective monitoring for family offices and advisors, ultimately contributing to improved portfolio performance and client satisfaction.
An ultra-high-net-worth family office opens a $5 million SMA focused on U.S. large-cap equities with ESG criteria. The investment manager buys individual stocks aligned with the family's values and tax situation. If some stocks have unrealized losses, the manager can sell them to realize those losses for tax offsets, which would not be possible in a traditional mutual fund environment. The family receives quarterly detailed reports listing each security, transactions, and realized gains/losses.
Separately Managed Account vs. Mutual Fund
While a Separately Managed Account offers a personalized portfolio with direct security ownership and customized strategies for a single investor, a mutual fund pools investors' money into a collective fund where investors own shares rather than individual securities. SMAs provide greater transparency, customization, and tax management capabilities, whereas mutual funds offer simplicity, liquidity, and diversification benefits at a lower minimum investment threshold.
What distinguishes a Separately Managed Account from a mutual fund?
The key difference is that an SMA is a privately managed portfolio for a single investor with direct ownership of each security, enabling customization and tax management, while a mutual fund pools assets from many investors and issues shares, limiting personalization and direct tax control.
Are there minimum investment requirements for SMAs?
Yes, SMAs typically require a higher minimum investment, often starting at $100,000 or more, reflecting the personalized management and administrative costs involved compared to pooled funds which have lower minimums.
How does tax efficiency work in a Separately Managed Account?
Because investors directly own securities in SMAs, managers can implement tax strategies like tax-loss harvesting and selective realizing of gains or losses based on the investor’s specific tax situation, enhancing overall tax efficiency.
