Separately managed accounts (SMAs) are portfolios that can contain a diverse selection of investments that are customized to meet the needs of an investor. These investment vehicles are professionally managed, but one important feature that they have is that they usually allow for a significant amount of participation from the investors. There are several other features that make these investment vehicles attractive, such as tax efficiency and variable investment strategies. For many people, however, SMAs are not an option due to the substantial minimum investment that is often required.
Separately managed accounts appeared on the investment scene in the 1970s. SMAs may be referred to by a number of alternate names, such as privately managed accounts or individually managed accounts. They are often compared to or sometimes mistakenly confused with mutual funds. SMAs, however, are believed to have been created as an alternative to mutual funds.
SMAs are professionally managed investment vehicles. There are a number of features that make them attractive to those who use them. To begin with, these investment vehicles can be personalized. Although they are professionally managed, they are not treated as group investments where each investor owns the same securities selected by the money manager. Instead, SMAs can be customized to meet the needs of an individual or of a business.
The money manager usually plays several important roles. He acts as an advisor to help investors determine which combination of investment vehicles will help them to reach their goals. He generally provides ongoing advice and recommendations that keep investors on track. It is also usually the money manager’s responsibility to provide periodic account statements. Throughout the business relationship, however, the client should have the opportunity to play an active role in the decision making.
SMAs are flexible. These portfolios may contain several types of assets, including cash. Various investment strategies may be applied to help investors to meet their goals. They are known for their liquidity, which is important to many investors. Another important feature of separately managed accounts is that they often have tax benefits.
Although these investment vehicles have been in existence for decades, they are not as commonly used as many other types. One reason for this is because many investors are excluded from access to separately managed accounts due to the minimum investments. These tend to be higher than those that are required for many other investment vehicles.
