Separately Managed Account

A separately managed account — commonly abbreviated SMA — means the investment manager runs a strategy specifically inside an account that belongs to the client. The client owns the individual securities directly, not shares of a fund. This is the key distinction from a mutual fund or a limited partnership, where many investors' assets are combined and each investor owns a proportional interest in the pool rather than the underlying holdings.

For families, direct ownership of securities in an SMA can matter for several practical reasons. Tax-loss harvesting (selling positions at a loss to offset gains elsewhere) is more flexible when the client owns individual stocks rather than fund shares. Holdings can sometimes be customized — for example, excluding certain industries or companies. And because the assets sit in the client's own account at a custodian, there is clear legal separation from the manager's own assets.

A hypothetical example: a family with a concentrated position in a single tech stock might hire an SMA manager to build a diversified equity portfolio around it, explicitly excluding that stock and harvesting losses strategically over time. That kind of customization is generally not available inside a commingled fund. The manager's decisions are visible at the individual security level, which some families find useful for consolidated reporting and for discussions with their investment policy statement process.

SMAs are sometimes confused with brokerage accounts — the brokerage account is the container; the SMA is a management arrangement that operates inside a container. Qualified attorneys and CPAs should be involved in evaluating how SMAs fit within a family's broader entity and tax structure.