A GUIDE TO SEPARATELY MANAGED ACCOUNTS (SMAS)

Published April 2026

What Is a Separately Managed Account (SMA)?

A Separately Managed Account is an investment account owned by a single investor and managed according to a specific investment mandate.

Unlike pooled vehicles, such as mutual funds or ETFs:

• The investor owns the individual securities directly

• The portfolio is managed to a specific set of guidelines

• Holdings, transactions, and performance are fully transparent

SMAs are typically managed by professional investment managers and held at a custodian in the investor’s name.

How SMAs Differ from Pooled Investment Vehicles

The key distinction is ownership and control.

In a pooled vehicle:

• Investors own shares of a fund

• All investors receive the same portfolio

• Tax consequences are shared

In an SMA:

• The investor owns the securities

• Portfolios can be tailored

• Tax management occurs at the individual account level

This structure allows SMAs to integrate more tightly with tax planning, estate planning, and broader portfolio objectives.

Why Investors and Institutions Use SMAs

SMAs are not new, but advances in technology have significantly expanded how they are used.

Key benefits include:

1. Customization

SMAs allow portfolios to reflect investor-specific needs, including:

• Risk tolerance and investment objectives

• ESG or values-based constraints

• Exclusion of certain securities or sectors

• Accommodation of legacy holdings or concentrations

This flexibility is difficult, or impossible, to achieve in pooled funds.

2. Tax Management

Because securities are owned directly:

• Tax-loss harvesting can be implemented at the security level

• Capital gains can be managed more intentionally

• Portfolio transitions can be handled more efficiently

This is especially valuable in taxable portfolios.

3. Transparency

With an SMA, investors can see:

• Every holding

• Every trade

• Every source of return

This transparency supports better governance, oversight, and communication—particularly for institutions and fiduciaries.

4. Control and Oversight

Investment guidelines are explicit and enforceable:

• Portfolio constraints are documented

• Compliance can be monitored continuously

• Changes can be implemented without liquidating a fund

This level of control is why SMAs remain a preferred structure for institutions.

SMAs and Modern Portfolio Construction

Today, SMAs are used in a wide range of applications, including:

• Core equity and fixed income allocations

• Factor-based and rules-based strategies

• Direct indexing portfolios

• Manager-select and multi-manager implementations

In many cases, SMAs serve as the delivery mechanism for strategies that require customization and tax awareness.

When SMAs Make the Most Sense

SMAs tend to be most effective for:

• Taxable investors

• Larger account sizes

• Institutions and fiduciaries

• Investors with complex planning needs

They are often used alongside ETFs and mutual funds rather than as replacements.

SMAs vs. ETFs: A Structural Choice

ETFs remain highly effective tools for:

• Smaller accounts

• Tax-advantaged accounts

• Tactical exposures

SMAs shine where:

• Customization matters

• After-tax outcomes are important

• Transparency and control are required

The choice is not about which structure is “better,” but which is more appropriate for the specific use case.

The Bottom Line

Separately Managed Accounts provide a powerful and flexible foundation for modern investing.

By combining professional management with transparency, tax efficiency, and customization, SMAs enable portfolios to be aligned not just with markets, but with the investor’s full financial picture.

As investment technology continues to evolve, SMAs are not becoming obsolete. They are becoming more relevant.

by CEO / Founder John Crosson