An SMA or separately managed account is an operational investment service which integrates ongoing investment management and investment administration. This also enables investors to have one point of contact for all, or most, of their direct equities market investments.
From an investment perspective, an SMA can be described as a portfolio of directly held investments that is professionally managed.
An SMA provides investors with many benefits, including:
- Control – Model portfolio transparency, customisation, tax optimisation, and a number of other factors provide investors with greater control than a managed fund, while still benefiting from the expertise of a professional manager.
- Transparency – Individual portfolio holdings are visible in real time, unlike managed funds where performance details are typically only available periodically.
- Direct ownership of shares – Investors are beneficial owners of the underlying securities, rather than owners of units in a pooled trust.
- Portability of shares – Investors can transfer existing shares “in-specie” into, or out of any model portfolio without triggering a taxable event and, as a result, crystallising any embedded capital gain positions.
- CGT Advantages – Through direct ownership investors do not inherit embedded capital gains and are not subject to the redemption activity of other investors. SMAs may be an effective tax management tool, enabling investors to off-set capital losses against capital gains.
- Portfolio administration & reporting – Investors and their financial advisers are able to access a range of detailed reports on investments, income transactions, taxation and other matters online.
- Lower transaction costs – Potential for lower transaction costs through blending and netting proceeds.
The major risk with SMAs is the potential ‘slippage’ between the performances of a model portfolio and any unit trust version offered by the investment manager. This may result from operational inefficiencies at either the investment manager or platform operator.
Amanda Gillespie is the joint chief executive of Lonsec Fiscal Holdings.
