As SMA Sales Hum, The Buzz Grows

–Client Tax Status. An SMA may be appropriate for affluent investors looking to lower investment expenses or, in certain cases, have more ability to manage tax exposure actively.

–Client Life Stage & Risk Tolerance. An SMA program may be appropriate for someone with a large amount of assets and the need for personal attention in managing them. Beyond the traditional affluent investor, some candidates for SMAs include those with an IRA rollover, selling a business, winning a financial settlement or receiving an inheritance.

As discussed, an SMA is a customized wealth management strategy and should be presented as such to your affluent clientele. And your approach to an SMA client needs to be more specialized, comprehensive and consultative. SMA providers, or “platforms,” will provide all of the support needed to serve this client, but ultimately you own the relationship.

Growing PopularityAccompanied By Growing Responsibility.

In the 1990s, it seemed investors and advisors could do no wrong as the market consistently advanced. Today, we face a much more complex and challenging environment. Investors still want growth but also are more concerned about preserving and protecting their retirement nest egg. Many are seeking a greater level of expertise and are receptive to sophisticated approaches that pursue growth while managing downside risk.

As individual investors, they are looking for high-quality tools, advice and investment capabilities often available only to large institutions. This is especially true for affluent investors, whose primary concern may not always be to beat the market every year, but rather to preserve their assets, sustain them through retirement and leave a legacy for loved ones.

It is not surprising that SMAs have become so popular despite the challenging markets of recent years. The markets, in fact, have underscored the advantages this vehicle can potentially deliver. SMAs are beginning to show growth similar to that observed in the mutual fund industry in the 80s and early 90s.

In fact, the industry recently topped a half trillion dollars, with $506.63 billion at the end of 2003, according to the Money Management Institute. SMAs grew 29% in overall assets last year and projections for assets at the end of 2005 range from $700 billion to $800 billion. These projections are based on asset figures from a survey of managed account sponsor firms conducted by the Money Management Institute.

Now, advances in technology and product design have led to more accessible, lower minimum, separately managed account products. Companies are introducing “next generation” SMA products offering many of the same benefits we have discussed but at a much lower entry point.

Some new products, generally referred to as MDAs, or multi-discipline accounts, actually offer managed account access for as low as $25,000. In general, we believe that broadening access to this type of program is a good thing, but suitability is key. While an SMA may be appropriate for a certain subset of clientele, it is up to you to make sure you present the right product to the right client in an appropriate way.

is a vice president of portfolio management with GE Private Asset Management (GEPAM), based in Sherman Oaks, Calif. He can be reached at [email protected].

Reproduced from National Underwriter Edition, July 22, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.