Monday, 08 April 2024 04:54

SMA Insights for Advisors and Clients

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Separately managed accounts (SMAs) are ascending in wealth management as they enable advisors to offer clients nearly unlimited options for customization and can lead to more efficient tax management. 

Another feature of SMAs is better economics in terms of aligning goals and incentives between both parties, especially compared to other structures. With SMAs, management fees are based on capital that is deployed rather than committed, which leads to better deal flow and attention from managers. There is also more ability to negotiate fees to incentivize long-term performance and foster more durable relationships. Further, SMAs can be set up to optimize the tax situation of individual clients.   

Overall, SMAs are gaining traction due to more flexibility and choice, which can lead to better outcomes in terms of performance and governance. The SMA agreement can also be adjusted if necessary, rather than having to create an entire new vehicle. 

For investors, SMAs also offer more protection and oversight beyond simply aligning incentives between investors and managers. More active and involved investors may prefer a non-discretionary SMA in which the investor approves each investment before capital is deployed. Additionally, investors get input into matters such as distributions, valuation, expenses, and reporting. 

Finsum: SMAs are rapidly gaining traction. Here are some of the advantages they offer investors and advisors.  

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