Separately Managed Accounts: A Personalized Investment Strat

When it comes to investing, most people know about mutual funds, ETFs, and retirement plans. But there’s another option that offers more control:

Separately Managed Accounts, or SMAs.

SMAs are a powerful way to invest if you want a customized approach. They let you own individual stocks and bonds, all while working with a professional who manages the portfolio on your behalf. SMAs are great for people who care about taxes, want to invest according to their values, or need more personal attention than mutual funds can offer.

In this guide, we’ll break down what an SMA is, how it works, and why it might be a smart choice for your long-term financial plan.

What Is a Separately Managed Account?

A Separately Managed Account (SMA) is an investment account that holds individual securities—like stocks and bonds—that are managed by a professional advisor. Unlike mutual funds or ETFs, where your money is pooled with other investors, an SMA is tailored specifically to you.

You own every asset directly in the account. That means more control, better tax planning, and full visibility.

Let’s say you want to avoid investing in oil companies. With an SMA, you can tell your manager to exclude those stocks. Want to prioritize dividend-paying stocks or green energy? No problem. The manager will build a portfolio that fits your preferences.

How SMAs Work

SMAs are offered by wealth management firms, investment advisors, and sometimes through banks. Here’s a basic breakdown:

You meet with a financial advisor who helps you define your investment goals, timeline, and risk level.An investment manager builds and manages your portfolio, using individual stocks, bonds, ETFs, or a mix.You receive regular reports showing what you own, how it’s performing, and what changes are being made.

You can often view your holdings online in real time, and you’ll have direct contact with your advisor for updates or questions.

Key Benefits of SMAs

SMAs are different from regular investment products in several key ways:

1. You Own the Securities

In an SMA, you don’t own shares in a fund—you own the actual stocks or bonds. This gives you greater transparency and the ability to make adjustments based on your values or goals.

2. Customization

SMAs are built to match your unique situation. You can adjust based on:

Risk toleranceSector preferencesESG (Environmental, Social, Governance) valuesIncome needs

This level of customization is rarely available with mutual funds or ETFs.

3. Tax Efficiency

Since you own each asset, your advisor can make tax-smart decisions like:

Harvesting tax lossesDeferring capital gainsOffsetting gains with losses

These strategies can reduce your tax bill, especially in high-income years.

4. Professional Management

SMAs are managed by experienced investment professionals. They monitor markets, adjust your portfolio as needed, and ensure your investments stay on track.

5. Visibility and Clarity

With an SMA, you always know exactly what you own. You’ll receive detailed reports and updates so you’re never left wondering where your money is.

SMA vs Mutual Fund vs ETF

Here’s how SMAs compare to two popular alternatives:

FeatureSMAMutual FundETFOwnershipIndividual securitiesFund sharesFund sharesCustomizationHighNoneNoneTax EfficiencyHighLow (shared distributions)Medium (can be more efficient)FeesVaries, often 0.5–1.0%Lower, but not personalizedVery low, but passiveTransparencyFullQuarterly disclosuresReal-time holdingsMinimum Investment$100,000+ (now often lower)Low ($500–$3,000)Low (price of one share)

Who Should Consider an SMA?

While SMAs were once limited to high-net-worth investors, many platforms now offer them with lower minimums (sometimes around $50,000).

An SMA might be right for you if you:

Want more control over your portfolioCare about socially responsible investingHave a complex tax situationNeed a custom retirement income planPrefer direct ownership of assets

If you’re saving for retirement, an SMA inside an IRA or trust can also help you manage distributions and estate planning.

Things to Consider

Before jumping into an SMA, here are a few things to think about:

1. Minimum Investment

Some SMAs still require $250,000 or more to get started, though others now accept as little as $25,000. Check with your advisor.

2. Fees

You’ll usually pay a management fee (around 0.50%–1.00%) based on the size of your portfolio. This covers research, management, and reporting.

3. Manager Skill

Performance depends heavily on the manager. Make sure you’re working with a reputable advisor or firm with a solid track record.

4. Time Horizon

SMAs are best for long-term investors. Because you own individual securities, frequent trading can create tax consequences or transaction costs.

Real-Life Example

Let’s say Jane, age 50, has $200,000 to invest. She’s in a high tax bracket and wants to avoid tobacco stocks. Her advisor recommends an SMA.

Her portfolio includes:

30 dividend-paying stocks10 municipal bonds5 ESG-screened ETFs

The advisor adjusts the portfolio quarterly and harvests losses at year-end to reduce Jane’s tax bill. Jane receives monthly updates and meets with her advisor twice a year.

In this case, the SMA helps her stay aligned with her financial goals, values, and tax situation.

Are SMAs Safe?

Yes, SMAs are regulated investment vehicles. They’re held in your name at a trusted custodian, like Charles Schwab, Fidelity, or TD Ameritrade. Your account isn’t commingled with other investors’, and you can usually transfer or asset manager liquidate assets if needed.

Just remember: like all investments, SMAs come with risks. Market fluctuations, interest rates, and economic events can impact performance.

Separately Managed Accounts: Personalized Investing

SMAs give long-term investors what mutual funds and ETFs can’t—customized strategies, direct ownership, and professional oversight. Whether for retirement, wealth growth, or legacy planning, they offer unmatched personalization.

Have a quick question? Contact me directly and let’s talk through your financial needs.
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