What to know amid the rise of separately managed accounts
SMAs can provide tax advantages, but investment minimums may be steep


Separately managed accounts (SMAs), or custom investment portfolios overseen by professional money managers, were once reserved for the high-net-worth. But recently, according to The Wall Street Journal, "SMAs are growing in popularity as investment minimums fall — and amid a heavy marketing push."
Per the Journal, this marks a notable shift, with individual investors "bucking the trend toward passive investing in mutual funds and exchange-traded funds in favor of active, individualized money management." While there are certainly upsides to these personalized portfolios, there are also drawbacks worth noting.
What is a separately managed account?
As Investopedia explains it, "an SMA is a portfolio of assets managed by a professional investment firm." Unlike pooled investment vehicles like mutual funds and ETFs, which are comprised of "investments shared by a group of investors," separately managed accounts are personalized to the individual investor, who directly owns all of the securities in the account.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
"Within the portfolio there may be stocks, bonds, cash or cash equivalents, or other assets," reports SoFi, as it is "up to the investor to choose which strategy to follow, based on their individual needs, risk tolerance, and objectives."
What are the benefits of separately managed accounts?
According to SmartAsset, the fact that you own all of the securities in an SMA "gives you a bit more flexibility as to how those funds are invested and managed, as well as the transparency to monitor trades in real-time."
Further, you'll have a portfolio that's completely customized to you, as opposed to other pooled investment vehicles, which "are tailored to what best benefits investors as a group," explains SmartAsset. This means that you may have the ability to "exclude certain securities or request that others be added to align with your investment goals," or even "change the direction of the strategy in the case of a recession or other market event," SoFi notes.
Additionally, SMAs can provide tax advantages. According to SoFi, "with separately managed accounts, a financial advisor or wealth manager can implement tax-loss harvesting strategies to help you get the most from your investment dollars."
Are there any downsides to separately managed accounts?
Arguably one of the biggest downsides of SMAs is the cost involved. According to the Journal, citing data from Cerulli Associates, while "average fees for SMAs depend on many factors such as the size of your investment and the asset manager you select," they tend to average a total of "around 1.44% overall, and they include the financial adviser fee of 1.14% and an asset management fee of 0.3%." This is far steeper than the costs of mutual funds and ETFs — "average fees for mutual funds are 1.01% and 0.48% for ETFs," the Journal reports, citing Morningstar Direct.
And while investment minimums for separately managed accounts are getting lower, they can still be steep. Per SmartAsset, "many financial institutions require a hefty minimum to open a SMA, often between $50,000 and $100,000." Sometimes, per the Journal, you may find minimums as low as $25,000.
There's also the possibility that an SMA may offer less diversification than pooled investment vehicles, which is important for lowering your risk by spreading your money across a range of assets. "Since separately managed accounts hold individual securities," writes SoFi, "it's harder for them to offer the same level of broad-based diversification as a mutual fund or exchange-traded fund (ETF), which could hold hundreds or thousands of different stocks."
How can you invest in an SMA?
Before you invest, consider if an SMA is really right for you. "If you are in a high tax bracket and have a lot of sources of capital gains, an SMA may be appropriate," D.J. Tierney, director and senior portfolio strategist at Charles Schwab Asset Management, told the Journal. Meanwhile, for those who are "young and don't have individual capital-gains exposure this may not be for you," per Tierney.
To open an SMA, you'll need to turn to a professional investment management firm. As SoFi explains, "investors pay a financial professional to manage the separately managed accounts they own," and while "the portfolio manager handles day-to-day decision making [...] the investor retains control over the overall SMA investment strategy."
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She previously served as a deputy editor and later a managing editor overseeing investing and savings content at LendingTree and as an editor at the financial startup SmartAsset, where she focused on retirement- and financial-adviser-related content. Before that, Becca was a staff writer at The Week, primarily contributing to Speed Reads.
-
Art review: Diane Arbus: Constellation
Feature Park Avenue Armory, New York City, through Aug. 17
-
July fiction: Summers to remember
Feature Featuring the latest summer-themed novels from Darrow Farr, Lucas Schaefer, and more
-
Why are flash floods in Texas so deadly?
Today's Big Question Over 100 people, including 27 girls at a summer camp, died in recent flooding
-
What to know about private equity in your 401(k)
the explainer BlackRock is making private investments available in employer-sponsored retirement plans
-
4 tips to get a lower credit card APR
the explainer Don't let your card's annual percentage rate balloon your balance
-
Who has to pay the estate tax?
the explainer Trump's new bill will permanently shift who owes federal estate tax
-
Does buy now, pay later affect your credit score?
the explainer The company behind the FICO score is going to start including a person's 'buy now, pay later' payment history in its credit models
-
What is credit card churning and why is it risky?
the explainer Churners frequently open new credit cards with the intent of earning a welcome bonus and accessing other perks
-
How quarterly estimated tax payments work and when they are due
The Explainer Freelancers, small business owners and those with a side hustle may need to make more frequent tax payments
-
The downsides of a 'forgotten' 401(k) and how to find it
the explainer Don't leave your old retirement plan behind
-
3 tips to save for a cruise this year
The Explainer The convenience of a cruise doesn't necessarily come cheap without some strategic planning