The top separately managed accounts
Posted on 17. Mar, 2010 by admin in Management
Separately managed accounts are individual managed investment accounts extended by a brokerage firm through its brokers or financial consultants. They are supervised by independent money managers. The features of SMA accounts include having an open structure, more than one money manager, and individualized investment portfolios that are created to reflect a client’s investment goals.
The phrase “separately managed account” describes accounts that are handled by a portfolio manager inside the firm or independent investment advisors as well as an administrator. They tend to act a lot like mutual funds. Customers pay a flat rate to a money manager to manage the investment. The difference between a SMA and a mutual fund is that the person who invests in a mutual fund purchases shares in a company that owns the investment. In a SMA arrangement, the investor actually owns the investment. If a comparable account is opened using a money management firm without a brokerage firm acting as an intermediary, it is referred to as a separately managed account.
SMAs emerged in the 1970s in response to clients’ desire to obtain needs that were not meet by the framework of traditional mutual funds. The clients wanted the ability to choose professional managers, customized portfolios, objective investment guidance for a set fee, tax efficiency and flexibility.
While there is not a definitive answer on whether SMAs are more beneficial than other portfolio types, they do have tax advantages. The mutual fund investor is taxed on any net capital gains earned by the portfolio. This tax liability reduces the investor’s return. In this situation, the gains considered to be unearned because the portfolio is owned by a brokerage firm. Because the assets in an SMA are owned by the investor, the gains are earned. The investor can ask the investment manager to sell securities to manipulate capital gains or losses for tax planning reasons.
Separately managed accounts are popular with affluent investors. Their popularity increased after the 2008 market decline. The increase has in demand has triggered the evolution of the SMA. One change is the creation of the unified management account. This connects several managers and tactics to an individual investor‘s account. These accounts let investors select a group of managers that have the superior capital and operating efficiency than accounts that are a part of a fund structure or SMA.
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