Flexibility Is Making SMAs More Popular With Advisors
The main distribution channel for separately managed accounts are wire houses, but the flexibility of SMAs is driving more and more financial advisors to use them, according to Michael Evans.
The vice president and consultant for Financial Research Corporation, Boston, spoke recently at a Money Management Institute event here.
“Advisors will start using SMAs in their portfolios more commonly,” he said. “It will be the core of the high-net-worth portfolio.”
Experts agree SMAs are most advantageous for the high-net-worth investor with at least $350,000 in investable assets, because a certain amount of money is placed into many accounts.
In order for the rate of return for each account to be worthwhile for the investor and in order to pay the fees involved, there needs to be a high enough figure in each one.
“The reason SMAs are attractive is theyre customizable, unlike a hedge fund or mutual fund where you buy them and everyone gets the same thing,” says Leonard Reinhart, president, The Bank of New York Separate Account Services, New York.
And, because an investor directly owns the securities within the account, she can specify investment restrictions and can request tax-loss selling.
“A mutual fund has both taxable and nontaxable investors in it, if youre in an SMA and youre a taxable client, your manager runs your portfolio to maximize the tax benefits for you,” Reinhart says.
Another way SMAs are customized is “fulfillment management,” he says.
“Say youre an executive at IBM and own stock and stock options in your portfolio, you probably should stay away from technology,” he says. “So you can tell your manager you dont want any tech stocks or IBM stocks. [Fulfillment management] creates a portfolio around the other investments the client might have.”