SMAs outpace mutual funds for wealthier clients, report shows

investmentnews.com:

Affluent investors have been pouring money into separately managed accounts and turning slightly away from mutual funds, a new consumer research report shows.

As of 2022, 22% of U.S. households that invest had SMAs, up from 13% in 2020, according to data published Thursday by Hearts & Wallets. Meanwhile, mutual fund ownership went from 38% to 39% during that time frame.

“I look at the decline of the mutual fund with sadness, but it’s getting replaced by other vehicles that are much more modern and accomplish the same things,” said Laura Varas, CEO of Hearts & Wallets.

“I’m a fan of the mutual fund as a way to get mass access to capital markets,” Varas said. “It initially was quite democratizing, in terms of bringing managed products, the expertise of portfolio managers and knowing someone was watching over your investments, to millions and billions of Americans.”

But SMAs aren’t taking the entire financial advice business by storm — the increase in ownership is rising most among households with $3 million or more to invest. For those investors, use has doubled over two years, going from 22% in 2020 to 41% in 2022, the Hearts & Wallets data show. And those investors are funneling their money into SMAs, allocating 29% of their overall portfolio to them last year, up from 22% in 2020.

“In the past, people said SMAs were sold, not bought,” Varas said. “I’m not sure that’s true anymore.”

Interest among clients has been mixed, several financial advisors said.

“Clients are perfectly happy still being in mutual funds, but I am seeing increasing interest in SMAs” as the latter “are becoming more affordable/lower cost and having lower account minimums,” Carla Adams, founder of Ametrine Wealth, said in an email.

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