SMAs: A Personalized Investment Approach

SMAs: A Personalized Investment Approach

September 27, 2023

Investing in the financial markets offers a multitude of options to grow your wealth, and Separately Managed Accounts (SMAs) have gained popularity as a unique investment vehicle. SMAs provide a personalized and tailored approach to investing, differentiating themselves from mutual funds.

Here is a brief explanation of what an SMAs is, how it differs from mutual funds, and which types of investors may benefit from utilizing an SMA in their investment strategy.

What is a Separately Managed Account?

A Separately Managed Account, often abbreviated as SMA, is a customized investment portfolio managed on behalf of an individual investor or institutional client. SMAs are designed to provide investors with a high level of personalization, control, and transparency in their investment choices.

These accounts are typically offered by professional asset management firms, financial advisors, and wealth management firms.

Key Characteristics of SMAs

Personalization: SMAs are tailored to meet the specific investment objectives, risk tolerance, and preferences of each client. Investors can work closely with their portfolio manager to define their unique investment strategy.

Individual Ownership: Each investor in an SMA owns the underlying securities directly, giving them legal ownership of the assets in their portfolio. This is different from mutual funds, where investors own shares of a pooled investment vehicle.

Transparency: SMAs offer greater transparency as investors can see the individual securities held within their portfolio. Mutual funds, on the other hand, disclose their holdings periodically and with a time lag.

Customization: Investors have the ability to exclude specific securities or sectors from their portfolio if they have ethical or tax considerations. This level of customization is typically not possible in mutual funds.

Tax Efficiency: SMAs often provide greater tax efficiency due to the ability to manage capital gains and losses on an individual basis. This can be particularly advantageous for high-net-worth individuals seeking to minimize their tax liabilities.

SMAs vs. Mutual Funds: Differences

Ownership Structure: As mentioned earlier, SMAs provide direct ownership of individual securities, whereas mutual fund investors own shares in a collective investment pool.

Customization: SMAs offer a high degree of customization, allowing investors to align their portfolio with their specific preferences. Mutual funds have a predetermined investment strategy that all investors in the fund must adhere to.

Transparency: SMAs provide real-time transparency into portfolio holdings, while mutual funds typically disclose holdings with a delay.

Costs: SMAs often come with higher management fees compared to mutual funds. However, the added cost can be justified by the personalized service and potential tax benefits.

Who Might Benefit from an SMA?

SMAs can be an excellent choice for a wide range of investors, but they are particularly suitable for the following types of individuals:

• High-Net-Worth Investors: Individuals with significant assets may benefit from the customization, tax efficiency, and personalized attention offered by SMAs.

• Ethical or Socially Responsible Investors: Those who want to exclude certain industries or companies from their portfolio based on ethical or environmental concerns can do so more effectively with an SMA.

• Tax-Conscious Investors: SMAs can be structured to minimize capital gains and optimize tax efficiency, making them attractive to investors looking to reduce their tax liabilities.

• Risk-Averse Investors: Investors with a low tolerance for risk can work closely with portfolio managers to create a conservative investment strategy that aligns with their risk profile.

Talk to Your Financial Advisor

Separately Managed Accounts are a flexible and highly customizable investment option that offers individual investors the opportunity to tailor their portfolios to their unique financial goals, risk tolerance, and ethical values. While they may come with higher fees compared to mutual funds, the benefits of customization, transparency, and tax efficiency can make them an attractive choice for high-net-worth individuals and those seeking a more personalized approach to wealth management.

SMAs empower investors to take greater control of their investments and align them with their specific financial objectives.

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Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

This article was prepared by Financial Media Exchange, LLC. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC. GENESIS Wealth Management LLC is not a registered Broker/Dealer and is not affiliated with LPL Financial.