Separately Managed Accounts (SMAs) are encompassed under the umbrella of Managed Accounts which are argued to be the latest step in the evolution of managed funds. Simply put, they are just managed funds where you hold the individual stocks and shares in your own name, rather than holding units/a share in a pooled fund.

Recent research performed by Funds Focus, highlighted a preference for direct share ownership as one of the main reasons investors had not invested in managed funds. Separately Managed Accounts allowing you to invest in a managed fund environment with the benefits of holding direct equities can be perceived as an ideal alternative.

What are Managed Accounts?

Managed Accounts typically encompasses Separately Managed Accounts (SMAs) and Individually Managed Accounts (IMAs) and simply put, is a managed fund where the portfolio of shares are held in your own name rather than through a pooled trust wrapper. This differs from traditional managed funds where the shares are held by the manager and you own units in the fund.

Since these products are still relatively new in the industry, much confusion exists in the definitions of how an IMA and SMA differ both at an adviser level and provider level. A simplified view differentiates IMAs as having your own personal manager looking after you running your own private portfolio and SMAs are a series of model portfolios, where the manager makes the same investment decisions accross all portfolios. However, with advances in technology allowing you to customise your SMA, confusion exists as to where the line is drawn as to what is an IMA and what is an SMA.

We’ve defined the differences as we see them to give you a greater understanding. Be aware though, these terms are regularly confused within the industry and you may find a provider/planner using one term to describe another.

Individually Managed Accounts (IMAs) are a Managed Account where the fund manager’s investment decisions are made in conjunction with your specific needs and requirements. Effectively, you have your own personal fund manager acting on your behalf. Due to the labour intensive nature of IMAs, minimum investments are typically upwards of $500k.

Separately Managed Accounts (SMAs) are a Managed Account where the investment decisions are made entirely independently of you, ie you never communicate with the individual fund manager. You may also find you have some control over filtering the available stocks and assets invested into, but the portfolio management remains independent of you. Since fund managers are able to pool investment management, SMAs have much lower investment minimums, typically starting at $20-$50k and are now being marketed as an alternative to managed funds.

Separately Managed Accounts

Separately Managed Accounts have only recently opened to the masses in Australia. Up until now, the added administration in holding shares directly in your name has meant that all types of Managed Accounts had high minimum investments. However, recent advances in technology have enhanced SMA provider administration and as a result, SMA investment minimums are almost comparable to that of unitised managed funds.

Separately Managed Accounts – What are the benefits?

Separately Managed Accounts are an ideal alternative to managed funds for investors who have a preference for investing in direct equities.

• You hold the underlying investments directly, so you do not inherit any embedded capital gains within the fund.
• If you no longer wish to have your investments managed but want to continue holding the underlying assets, you can in-specie transfer the shares to your own broker account, ie avoiding capital gains, buy/sell spreads and broker fees.
• Choose from a range of professionally managed portfolios across where you don’t have to make the investment decisions but hold investments directly.
• Some SMA providers offer you additional enhanced filtering, allowing you to hold/filter out individual stocks and/or asset classes that you may wish to hold/no longer hold.
• Some SMAs even allow you to choose the tax treatment of your portfolio sales and purchases, for example, allowing you to minimise or maximise your capital gains tax in each year.

Separately Managed Accounts are legally structured as a managed investment scheme (just like managed funds). To invest, click here to access our range of SMA providers currently on offer.