The BENEFITS of
SEPARATELY MANAGED ACCOUNTS
(SMA)
Until fairly recently investment professionals
only managed custom-tailored portfolios for very wealthy
investors.
With the advent of computer technology such a service
is now available to less affluent investors. That may
explain why this old-fashioned but preferable approach
is the fastest growing area of the investment management
industry.
Separately managed accounts (SMA) offer the following
benefits:
1. In an SMA, the manager can easily
change the asset allocation between stocks, bonds
and cash depending on market conditions and the
needs of the client.
2. Taxable gains taken in one part
of an SMA portfolio can be often offset by capital
losses taken elsewhere.
3.
Investors can eliminate securities that they
find objectionable without having to
avoid all “sin” stocks. For example,
some investors may dislike tobacco stocks while
having no problem with gambling-oriented issues.
4. Clients can interact with their
portfolio managers regarding the management of
individual investments. For example, investors
owning a large block of low-basis stock can often
diversify their portfolios over time while minimizing
taxes. Such dollar-cost exiting can be arranged
without having to sell an entire position.
5. Surprisingly, the management fees
for SMA are often less than those charged by other
management options. |
One word of caution: All SMA programs are not alike. Be
sure to check out their audited performance record, how
the portfolio manager interacts with the client, and the
amount of individual flexibility the program allows. Also,
be careful about the total fees being paid.
Concord has been specializing in SMAs since opening
for business in 1987. This approach to investment management
should be investigated by every serious investor.
For more information on SMAs, see Madison Investment Advisors’
educational piece, “Understanding
Separately Managed Accounts”.
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