More investors are seeking the ability to control what’s in their portfolio—and Separately Managed Accounts may offer a solution.
Customization is on the rise.
From selecting investments that match their values, or focusing on a particular sector or industry, investors are showing increased interest in managed portfolios that they can then customize to suit their values or preferences.
Need evidence? Look no further than the recent and explosive growth of Separately Managed Accounts, which accounted for just over a trillion dollars in total investment advisory assets in the first quarter of 20 17. That’s an impressive 16% increase from the previous two years—and a 84% explosion since 2010, according to data from Cerulli Associates.
While Separately Managed Accounts (SMAs) have been around since the 1970s, since 2008, they have seen renewed interest, bringing active management and investment customization to a broader array of investors. SMAs provide a convenient, cost-effective way to hold individual securities, without the hassle of having to manage the investments yourself.
“For many investors, the biggest appeal is the transparency—that you can know and control everything that’s in your managed account,” says Kevin Lynyak, Morgan Stanley Wealth Management’s Director of Advisory Portfolios. “That, and the attractive cost relative to mutual funds and active ETFs, is really what’s been driving the growing interest in these products.”
Transparency and Customization
Some of the popularity of mutual funds in the past few decades has been fueled by investors seeking diversification, without the cumbersome process of coordinating the buying and selling of individual investments.
While these vehicles offer streamlined access to a variety of asset classes, investors still don’t have a say in how the fund is invested beyond the published investment objective. Some investors want more—and the ability to fine-tune your portfolio to better align with your financial goals is appealing. This is where SMAs come in. At their most basic, the accounts comprise stocks, bonds and other securities. However, unlike mutual funds, instead of a unit share of the fund, you actually own the underlying securities.
“It’s an easy way to own individual securities, with the added advantage of having a manager select them for you,” Lynyak says. Investors can choose firm-approved professional portfolio managers whose approach matches their objectives. The low minimums—t hey can start at $25,000 per separate account—and competitive fees mean that SMAs essentially bring institutional-caliber management and expertise to investors who may not have had access to such a service before.
Owning the individual securities can also offer specific tax benefits, teeing up the opportunity to harvest losses in the portfolio to offset gains, says Robert Garcia, Head of Packaged Digital Solutions for Morgan Stanley Wealth Management. “That definitely makes sense for a lot of high net worth individuals,” Garcia says.
Individual Investors, Individual Needs
As expected, the performance of any single SMA certainly depends on its individual holdings. Still, broadly speaking, SMAs have outperformed their ETF counterparts across multiple equity styles, offering higher gross, net and risk-adjusted returns, according to a long-term study by Dr. Yuanshan Cheng of Winthrop University.1
For investors, this means that SMAs don’t requi re a higher risk tolerance or longer investment horizon. Instead, Garcia says that they’re ideal for people in myriad circumstances. For example, you may own a large amount of stock in one sector or company and need to diversify. They’re also a good option if you’ve inherited a significant sum of money or want to take the opportunity of job change to roll your retirement savings into a more customized, separate account.
“With SMAs, you call the shots, and the accounts are portable—so they stay with you, even as you make career moves,” Garcia says. He advises that investors ask themselves these questions to determine whether a separate account makes sense for their financial plan:
Do you want more control over your investments?
Do have accounts that you want to consolidate?
Are you interested in working more closely with your portfolio manager?
Do you need additional ways to reduce your tax liability?
A Variety of Options
Recognizing the demand from investors for more personalized products, Morgan Stanley Wealth Management’s Consulting Group offers numerous SMA options, including its recently launched Managed Advisory Portfolio Solutions (MAPS) program. MAPS offers innovative SMAs, informed by the thought leadership of the firm’s equity, fixed-income, and quantitative investment teams, and with investment minimums as low as $25,000.
“The MAPS SMAs give investors access to some of Morgan Stanley’s top intellectual capital, with smaller minimums than if you were to hire an investment manager directly on your own,” says Brian Rosevear, Consulting Group Executive Director.
The MAPS SMAs provide:
Turnkey investment solutions that simplify the investment process;
Significant cost-saving opportunities for clients;
The expertise and due diligence of experienced portfolio managers and research analysts;
Portfolio construction that matches your investm ent goals.
Transparency, control, personalization and tax efficiency. If you’re looking for more of any of those within your current investment portfolio, then investigating Separately Managed Accounts may be the answer.
To see if Morgan Stanley’s Managed Advisory Portfolios are right for your investing strategy, talk with your Morgan Stanley Financial Advisor today, or find one near you using the locator below.
Asset allocation and diversification do not assure a profit or protect against loss in a declining market.
To impose reasonable restrictions on investments in your account, e.g., no tobacco securities, you must contact your investment manager directly. Morgan Stanley cannot guarantee that such requests will be honored.
Rebalancing does not protect against a loss in declining financial markets. There may be a potential tax implication with a rebalancing strategy. Please consult your tax advisor before implem enting such a strategy.
Morgan Stanley Smith Barney LLC, its affiliates and its employees are not in the business of providing tax advice. Investors should seek advice based on their own particular circumstances from an independent tax advisor before implementing any tax strategy. The performance of tax-managed accounts is likely to vary from that of nontax-managed accounts.
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