What Is An SMA (Separately Managed Account)

A separately managed account (SMA) is a portfolio owned by one person (or one legal entity such as a trust) that is managed by a professional investment manager. In an SMA arrangement, the investment manager has discretion over how the SMA funds are invested, and the manager may make different investment decisions for different accounts.

The primary benefit of SMAs is that investment managers can offer customization based on an investor’s goals and taxable income situations. The primary drawbacks to these accounts are the high management costs, and the possibility of underperformance.

Since SMAs are typically only available to individuals with a high net worth with at least $250,000 in investment assets, most people don’t have to decide whether to consider the accounts. However, if you’re wealthy today, or plan to become wealthy some day, these are the things you should know about SMAs.