What Is an SMA Account?

Contrary to popular belief, you don’t need to be rolling in a Bentley to afford a separately managed account. SMAs are also known as individually managed accounts or wrap accounts. They offer investors customized portfolio management by professional money managers. In recent years as of the date of publication, they have performed quite nicely despite the economic downturn, and they have also become more accessible to those without the wealth of Warren Buffett.

Professional Money Management

You may think of an SMA as a “private mutual fund,” according to Vivian Marino of the “New York Times.” If you have an SMA, your broker will funnel some of your cash to professional money managers known as separate account managers, who will then purchase anywhere from 15 to 60 individual stocks on your behalf and oversee their performance. The hands-on approach of the SMA manager is attractive to many investors who want more control over their investments.

Minimum Investment Requirements

SMAs were once the exclusive domain of the super rich and required a minimum investment of several million dollars up front. However, with the continued development of technology in the investment industry, the entrance fee for these funds has steadily declined, making them more affordable for the nearly rich. Minimum investment requirements for SMAs now range from $50,000 to $250,000.


SMAs have rebounded nicely since the credit crunch, according to Elizabeth Wine of the investment magazine “On Wall Street.” Among SMAs that have experienced high performance are the Invesco Master Limited Partnership, which achieved 18.9 percent gains in U.S. equities in 2011; the PIMCO Global Government Unhedged, which posted a 9.6 percent return on international bonds in 2011; and the Newton Capital Management SMA, which saw 3.04 percent net return in international equities in 2011.

Pluses and Minuses

On the plus side, investors own the stocks, bonds and securities that the SMA manager selects for their portfolios, whereas in mutual funds the investors only own the shares in the fund but not the principal investments. This means that investors can avoid imbedded capital gains tax. SMAs also promote personalized investing in socially responsible stocks.

On the minus side, an investor with less than $2 million may experience poor treatment from the SMA manager, or even find that the individual manager is actually a computer.

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