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A separately managed account (SMA) is a type of investment account that allows an investor to have individual ownership of assets, such as stocks, bonds, and funds. An SMA is managed by a professional investment manager, who creates a customized investment portfolio based on the investor`s unique investment goals and risk tolerance. This type of account can offer several advantages over traditional mutual funds or exchange-traded funds (ETFs), including tax efficiency, increased transparency, and more flexibility.
If you`re considering opening an SMA, it`s important to understand the investment management agreement that governs the account. This document outlines the relationship between you and your investment manager, including their responsibilities, compensation, and any restrictions or limitations on your account.
One key element of an SMA investment management agreement is the investment objective. This section will outline the specific investment goals and risk tolerance of the account, which the investment manager will then use to create a customized portfolio. It`s important to ensure that the investment objective aligns with your own financial goals and expectations.
Another important section of the agreement is the fee structure. SMA investment managers typically charge a fee based on a percentage of the assets under management (AUM), which can range from 0.5% to 2% or more. Be sure to understand the fee structure and how it will impact your investment returns.
The agreement will also outline any restrictions or limitations on your account. For example, there may be restrictions on the types of investments that can be included in your portfolio or limits on the amount of cash you can hold.
Finally, the agreement will outline the termination process for the account. If you decide to close your SMA or switch to a different investment manager, the agreement will outline the steps you need to take and any fees or penalties involved.
In summary, if you`re considering investing in an SMA, it`s important to carefully review the investment management agreement. This document will outline the specific details of your investment relationship and can help you make an informed decision about whether an SMA is right for you. By understanding the investment objective, fee structure, restrictions, and termination process, you can ensure that you`re getting the most out of your investment account.