What is an sma in finance?

What is an sma in finance?

What is an sma in finance?



In the world of finance, there are numerous terms and acronyms that can be confusing for those not familiar with the industry. One such term is SMA, which stands for Separately Managed Account. This article aims to provide an in-depth understanding of what an SMA is, its purpose, and how it functions within the finance industry.

Understanding SMA

Definition: A Separately Managed Account (SMA) is an investment account that is managed by a professional investment manager on behalf of an individual investor. Unlike mutual funds or exchange-traded funds (ETFs), SMAs offer a more personalized approach to investing, as the investment manager tailors the portfolio to meet the specific needs and objectives of each client.

Structure and Function: SMAs are typically structured as individualized portfolios of stocks, bonds, or other securities. The investment manager has the authority to make investment decisions on behalf of the client, taking into consideration their risk tolerance, investment goals, and any specific preferences they may have. The client retains ownership of the individual securities within the account, providing transparency and control over their investments.

Benefits of SMA

Customization: One of the primary benefits of an SMA is the level of customization it offers. Unlike mutual funds or ETFs, which have a predetermined portfolio composition, SMAs can be tailored to the specific needs and preferences of each investor. This allows for a more personalized investment strategy that aligns with the investor’s goals and risk tolerance.

Transparency: Another advantage of SMAs is the transparency they provide. Since investors own the individual securities within the account, they have full visibility into the holdings and transactions. This transparency allows investors to have a clear understanding of where their money is being invested and how it is performing.

Tax Efficiency: SMAs also offer potential tax advantages. By owning individual securities, investment managers can implement tax-efficient strategies such as tax-loss harvesting or selective selling of securities with lower capital gains. This can help minimize the tax impact on the investor’s portfolio.

Considerations and Risks

Cost: SMAs typically have higher minimum investment requirements compared to mutual funds or ETFs. Additionally, investors may be subject to management fees and other expenses associated with the SMA. It is important for investors to carefully consider the costs involved and assess whether the potential benefits outweigh the expenses.

Manager Selection: Since the investment manager plays a crucial role in the performance of an SMA, it is essential to carefully evaluate and select a reputable and experienced manager. Investors should consider the manager’s track record, investment philosophy, and their ability to align with the investor’s objectives.

Market Risk: Like any investment, SMAs are subject to market risk. The value of the securities within the account can fluctuate based on market conditions, potentially resulting in gains or losses for the investor. It is important for investors to have a clear understanding of their risk tolerance and to communicate this to the investment manager.


In conclusion, an SMA, or Separately Managed Account, is an investment account that offers a personalized and tailored approach to investing. It allows investors to have a more customized investment strategy, transparency into their holdings, and potential tax advantages. However, investors should carefully consider the costs, select a reputable manager, and be aware of market risks. Overall, SMAs can be a valuable tool for individuals looking for a more personalized and hands-on approach to their investments.


– Investopedia: www.investopedia.com/terms/s/separatelymanagedaccount.asp
– Charles Schwab: www.schwab.com/resource-center/insights/content/separately-managed-accounts
– The Balance: www.thebalance.com/separately-managed-accounts-2466619