What Is a Separately Managed Account (SMA)?
A separately managed account (SMA) is an investment account that belongs to an individual investor but is professionally managed by a financial advisor or asset manager. The advisor has the authority to buy, sell, or trade assets on the investor’s behalf — all within parameters the investor sets ahead of time.
SMAs are typically best suited for investors with at least $50,000 to invest and who want a more personalized investment strategy than what they’d get with mutual funds or ETFs.
How a Separately Managed Account Works
A separately managed account involves three key players:
The Investor – Provides the capital and sets investment goals, preferences, and risk tolerance.
The Asset Manager – Makes investment decisions based on the investor’s guidelines and objectives.
The Platform Manager – Handles operations like trade settlement, account maintenance, and compliance.
Example:
Let’s say an investor puts $100,000 into an SMA and tells the manager to avoid fossil fuels and tech companies, while prioritizing dividend-paying stocks. The asset manager then builds a customized portfolio aligned with these values and goals — and continuously adjusts it as needed. All trades and logistical tasks are managed through the platform.
It’s important to note: Separately managed accounts are not the same as exchange-traded funds (ETFs) or exchange funds.
How Much Do SMAs Cost?
The average annual fee for an SMA is about 1.34% of assets under management (AUM). For a $100,000 account, that’s roughly $1,340 per year.
SMA fees may include:
A financial advisory fee
An asset management fee
Fee structures can vary depending on:
Portfolio type (equity, fixed income, etc.)
Total assets managed (larger accounts may receive lower percentage rates)
💡 Creditvana Tip:
SMA fees can be layered and complex. Always ask for a detailed fee breakdown so you understand what you’re paying and why.
Pros and Cons of Separately Managed Accounts
✅ Pros
Control – You own the account and can switch managers if needed.
Transparency – You see all trades and portfolio performance in real time.
Personalization – Your investment strategy is tailored to your goals, risk tolerance, and preferences.
❌ Cons
Time Commitment – You’ll need to research, select, and regularly communicate with your asset manager.
High Minimums – Many SMAs require a minimum investment of $50,000 or more.
Fees – SMAs can involve multiple fees, and some may be less transparent than others.
Why Investors Choose SMAs
Control and customization are the biggest draws of separately managed accounts. Unlike pooled investments like mutual funds, SMAs are individually tailored. You can set specific trading guidelines, exclude certain sectors, or even align investments with your personal values or tax strategy.
Success is measured based on your individual goals — not just on how the portfolio performs against market benchmarks like the S&P 500.
What to Watch Out For
Manager Selection: You’ll need to do your homework when choosing a trustworthy and competent asset manager.
Complex Costs: Review the advisor’s Form ADV Part 2, which they must file with the SEC. It discloses key information about fees, conflicts of interest, and management style.
Concentration Risk: Meeting the account minimum may mean allocating a large portion of your portfolio to one manager — which could be risky if diversification isn’t handled properly.
