Improvements in SMA technology have more advisors getting on board
A new Goldman Sachs survey shows investors are big fans of separately managed accounts. But what do advisors think of them? Are they worth the trouble for all their clients, or just a lucky few?
“I have used SMAs and found them to be very beneficial due to several factors, such as the ability to leverage professional management and customization to individual preferences and objectives, direct ownership, and transparency for clients to see the specific securities held within, and the ability to offer tax efficiency through tax-loss harvesting, and of course a method of diversification to complement their core investment strategies,” said Chris Mankoff, certified financial planner at JTL Wealth Partners.
Scott Bishop, certified financial planner at Presidio Wealth Planners, said he used SMAs often when they first came to prominence in the late 1990s as a way to have more customized portfolio management with better tax efficiency. Nevertheless, he found that after fees and limitations, the accounts tended to be “more sizzle than steak.”
However, given technology gains in recent years, SMAs and even direct indexing have become more affordable and easier to use.
Direct indexing is basically the next level of SMAs because it leverages emerging technologies to customize just about any index to meet an investor’s specific needs, whether that involves tax management, ESG preferences or even to navigate around overweighted exposure to specific stocks.
“They allow us to do tax-loss harvesting and avoid stocks where a client may be overweight already, such as employer stocks or other low-basis holdings,” Bishop said. “It’s so much easier now with the new computer programs and you don’t need one account for each SMA anymore.”
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