A Guide to Separately Managed Accounts: Investing Vehicles

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Separately managed accounts (SMAs) play an important role in providing investors choice in how they access professional investment management. They also offer the flexibility to tailor a portfolio that is responsive to the needs of high-net-worth individuals.

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What Is a Separately Managed Account?

 

A Separately Managed Account (SMA) is an investment vehicle that can be composed of stocks, bonds, cash, or other individual securities overseen by a professional money manager. The unique structure of an SMA provides the flexibility to customize the portfolio to address the Client's personal preferences and investment objectives.

 

With an SMA, investors benefit from direct ownership of securities, versus investing in a mutual fund or exchange-traded funds (ETFs), where your money is pooled with that of other investors. This difference is key to understanding the many advantages of an SMA, and what SMAs offer.

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SMAs are emerging as the vehicle of choice for more and more investors. They offer some key advantages that may play an important role in helping investors build a portfolio that is responsive to their needs.

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Characteristics of Separately Managed Accounts?

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Definition: Professionally managed investment portfolio of securities directly owned by the individual investor and managed according to a specific style or discipline.

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Ownership: Investors directly own the individual securities in their portfolios.

Investment: minimum $100K – unlimited

Funding Portfolios: may be funded with existing securities and/or cash.

 

Customization Portfolio: This can be tailored to address each investor’s specific needs.

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Tax efficiency Investors: can manage taxation because securities can be sold to harvest gains/losses.

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Fees Investors: typically pay one asset-based fee based on assets under management (either billed quarterly in advance or arrears).

Strengths:

• Customization

• Potential tax efficiency at security level

• Cost savings over mutual funds

• Transparency

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Weaknesses:

• High account minimums

• Limited strategy availability

 

 

What do Separately Managed Accounts offer?

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Customization

There are several ways to customize an SMA. It can be structured to exclude investments due to concentrated, single-stock positions (e.g., holding too much of one’s company’s stock), or the desire to avoid investing in certain product areas.

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Potential tax efficiency

Unlike a mutual fund, where capital gains are passed on to all investors, an SMA investor is only taxed on realized gains in his or her specific portfolio. Because an SMA contains individual securities, capital gains can be offset by instructing your manager to sell investments that will produce a capital loss through tax-loss harvesting. However, at Dean Ryle Asset Management this approach to investing is not recommended. Investment decisions are made on long-term profitability, not short-term tax gains. Importantly each Client has unique tax considerations

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Transparency

With an SMA, you receive regular comprehensive reporting. Your account statements show the securities you own, the number of shares, and many other details to help you understand how your investments are performing

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Professional management

Knowledge and experience are often the two most important qualities that professional money managers possess. Most investment managers work perform rigorous research and analytical exercises to make the best, most informed decisions for their clients.

 

A personalized approach 

Building a separately managed account is just the first step in an ongoing, consultative process. Together, you and your financial professional will work to help ensure your portfolio is on track to meet your investing goals. In addition, with certain highly customized portfolios, you may gain access to the professional managers who actively manage your account.

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Frequently Asked Questions

 

Q. What are the features of separately managed accounts? 

A. SMAs can offer customized portfolios, professional management and oversight, flexibility, transparency, diversification, tax efficiency and asset allocation, and more.

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Q. What types of investors own separately managed accounts? 

A. SMAs are best suited for individuals seeking a professionally managed, customizable portfolio that offers enhanced flexibility, transparency, and comprehensive communications, versus a mutual fund or ETF.

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Q. What investment strategies are available?

A. SMAs are offered in a wide variety of asset classes and investment styles, including large-cap, mid-cap, small-cap, multi-cap, value, and growth equities. At Dean Ryle Asset Management we prefer US large-cap equities offered at deep discounts relative to intrinsic value.

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Q. What if I have special requests? 

A. Separately managed accounts allow investors to impose reasonable stock, sector, or other preferences and restrictions on the securities in their accounts. For example, if you own your employer’s stock in your retirement savings plan, you may decide not to invest additional assets in the company.

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Q. How do I stay informed of my portfolio’s performance? 

A. Regular communication from your portfolio management team is an essential tool in keeping you and your financial professional informed. Among the tools that are usually provided: quarterly performance reporting, and online portfolio information.

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Q. What is the role of the financial professional after a managed account is opened? 

A. After your financial professional identifies and selects investments, he or she continues to allocate your capital when opportunities arise to meet your long-term goals. 

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All investments involve risk, including possible loss of principal. There is no guarantee that investment objectives will be achieved. Investors should consider their objectives, risk tolerance, and time horizon before investing. Diversification does not ensure a profit or protect against market loss.

Separately managed accounts (SMAs) are investment services provided by Dean Ryle Asset Management, LLC, a state-registered investment advisor. Client portfolios are managed based on investment instructions.

Dean Ryle Asset Management, LLC, its affiliates, and its employees are not in the business of providing tax or legal advice to taxpayers. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties or complying with any applicable tax laws or regulations. Tax-related statements, if any, may have been written in connection with the “promotion or marketing” of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

Any information, statement, or opinion set forth herein is general in nature, is not directed to or based on the financial situation or needs of any particular investor, and does not constitute, and should not be construed as, investment advice, forecast of future events, a guarantee of future results, or a recommendation with respect to any particular security or investment strategy or type of retirement account. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies should consult their financial professional.