SMAs - Separately Managed Accounts

Highly tax efficient and cheaper accounts!


SMAs or Separately Managed Accounts are share portfolios managed by an investment manager on behalf of an investor who retains individual ownership of each stock in the portfolio in their own name.


How They Work

The idea is that the investor chooses a share portfolio from a range of existing 'model' portfolios that are managed on the investor's behalf.

The assets are held in the name of the client who then has the ability to adapt the portfolio if they desire.

This makes SMAs distinct from a 'normal' managed fund where the fund manager does all the asset allocation.

Generally the level of investment is between $20,000 to $100,000 but some can go down to $5,000.

Starting investors in the share market may find this approach attractive as they get the benefit of a professional to set the starting portfolio which they can gradually take over if they wish.


Positive Features

A separately managed account is seen to be more tax effective than a unit trust and more business-efficient for an a financial advisor than a wrap account (an account in which a broker manages an investor's portfolio for a flat fee. This fee covers all administrative, commission, and management expenses).

Three aspects that investors like about this type of account include ...

  • they involve direct ownership of shares
  • they are highly tax efficient because the portfolio is managed with each client's individual tax circumstances in mind, and
  • they are cheaper than master trusts and wrap accounts.

Flexibility

An SMA is also very flexible in that investors can choose between small-cap or large-cap shares or a particular combination, as well as having the shares managed at the discretion of the model portfolio manager, or held independently.

Cash and property can also be included in the mix of investments and investors can choose whether to exclude a particular stock, sector or portfolio type.

The investor or their tax agent can access real-time reporting, easing the tax preparation process.


To Conclude

Separately managed accounts may make managed funds obsolete for new investments and replace wrap accounts as SMAs are more tax efficient and get the same investment outcome cheaper.


The greater control on the portfolio and the generally lower initial investment add to their attractiveness.

So from a beginning value investor's perspective, separately managed accounts have quite a lot going for them.

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