Why SMAs?
Separately managed accounts, or SMAs, are individual investment portfolios made up of individual securities actively managed by professional money managers. In the past, SMAs were often leveraged by ultra-high-worth investors but have become more affordable and accessible in recent years.
SMAs have many inherent benefits for investors, including the ability to increase portfolio diversification and provide you with a more straight-forward investment
experience. Here are some of the top benefits of investing in SMAs:
- Professional money management: SMAs provide you access to managers who traditionally oversee investments for large institutions or pension plans, but at a lower investment minimums.
- Increased transparency: Unlike pooled funds (e.g. mutual funds and exchange traded funds, or ETFs), you’ll own the individual securities within your SMA
portfolio, so you can more easily follow trades and changes to your portfolio. SMAs also allow you to own stocks from well-known companies versus fund groups. - Personalization and customization: We can restrict certain sectors or individual securities from your investments. For example, if you would rather not invest in tobacco or alcohol-related companies, we can customize your SMA portfolio to exclude these investments.
- Reduced costs: SMAs can help reduce your overall investment costs with lower, all-in manager fees—as compared to mutual fund and ETF models—and no embedded expense ratios.
- Diversification: By using SMA strategies, we can expose you to different sectors or investment styles that we couldn’t otherwise access through mutual funds or ETFs.
- Tax management opportunities: Thanks to the ownership of the individual securities within the portfolio, SMAs are tax-efficient investment vehicles that
don’t include embedded capital gains. As a result, we’ll potentially be able to better manage your tax outcomes. In fact, some SMAs even have tax-saving
features we can leverage in addition to the above.
How much does it cost to invest in SMAs?
SMA strategist models are available at investment minimums starting at $50K for a single model up to $300K for a combined SMA model portfolio. The total
up-front investment amount and manager fees will vary depending on the specific model or combinations of models we select.
Are there downsides to SMAs?
SMAs may have higher investment minimums, which can be a barrier to entry for some investors. Also note that due to holding individual securities, a single SMA portfolio can potentially offer less broadbased diversification than other investment vehicles, but by incorporating SMAs into an agreed upon longterm investment strategy customized to your situation, I am confident your investments will remain well-diversified with the addition of an SMA portfolio or multiple SMA strategies.
SMA Options
I have access to an investment technology called Model Wealth Portfolios (MWP) that allows me to offer SMAs at an affordable price point. With MWP, I can combine SMAs with other investment types, or multiple SMAs together, which along with proper asset allocation can further personalize your portfolio to your individual needs. Here are a few of the different SMA types we can access with MWP, with more than 200 individual SMAs to choose from:
- Equity SMAs are comprised of individual securities with the potential benefit of spreading risk and reducing exposure to fluctuations.
- Fixed income SMAs hold individual bond positions, which have a lower risk profile than equities and have a goal of further reducing risk exposure for investors.
- Direct Indexing SMAs focus on passive returns and track toward an industry index, which can enable us to achieve more diversified exposure.
Next Steps
Based on the amount you may have available to invest, the make-up of your current investments, your goals and risk preferences, as well as your income and tax management needs, I can present several SMA options that would be beneficial to incorporate into your portfolio.
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Disclosures
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. In choosing to participate in an SMA, investors should carefully consider the amount they plan to invest; their investment objectives; and the SMA’s investment objectives, risks, charges, and expenses before investing. Investing in an SMA involves direct ownership of the assets purchased by the investment manager on the investor’s behalf. Therefore, investors should understand and be able to bear all of the risks associated with the underlying assets. The amount and type of investment restrictions are subject to change and manager’s acceptance. There can be no assurance that any stated investment objectives will be achieved. LPL Financial does not provide legal advice or tax services. Please consult your legal advisor or tax advisor regarding your specific situation.
This material was prepared by LPL Financial, LLC.
Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).
Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL Financial affiliate, please note LPL Financial makes no representation with respect to such entity.
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