Separately Managed Account
A Separately Managed Account (SMA) is a professionally managed investment portfolio in which an investor owns the individual securities directly — rather than through a shared pooled fund — giving them greater transparency, customization, and tax management capabilities than a mutual fund or ETF provides.
The defining characteristic of an SMA is direct ownership. When an investor places assets in an SMA, the securities purchased reside in a brokerage account bearing the investor's name. The investor owns shares of Microsoft, Apple, and Amazon directly — not units of a fund that in turn owns those shares. This distinction, seemingly subtle, has profound implications for transparency, personalization, and tax management.
SMAs are managed by professional investment managers called overlay managers or model managers, who provide a model portfolio (a target set of securities and weightings) that the SMA platform implements on behalf of the client. Large custodians and broker-dealers — including Fidelity, Schwab, Merrill Lynch, and Morgan Stanley — offer multi-manager SMA platforms ('wrap programs') that let advisors combine multiple managers (an equity SMA, a fixed income SMA, an alternative SMA) into a unified client account.
Minimum investments for SMAs historically started at $100,000 to $250,000 per strategy, though the combination of fractional shares, zero commissions, and improved portfolio management technology has pushed some providers toward $25,000 or even $5,000 minimums for simpler strategies. Complex active equity strategies typically still require higher minimums to build a properly diversified portfolio of individual stocks.
The transparency of SMAs is a significant advantage for investors who want to know exactly what they own. Unlike a mutual fund where the full portfolio is disclosed only quarterly, an SMA investor sees every holding in real time on their brokerage statement. This visibility is particularly valued by investors with concentrated existing positions (they can see and request exclusions) or ESG concerns (they can screen individual holdings).
The tax management possibilities of SMAs flow directly from direct ownership. Losses in individual securities can be harvested to offset gains elsewhere; appreciated positions can be donated to charity (providing a deduction at full market value without recognizing the gain); and tax lots can be managed to optimize which shares are sold (using specific identification to select highest-cost-basis lots). These capabilities distinguish SMAs from pooled funds where such individualized management is impossible.