In funds management distribution, the new kids on the block are separately managed accounts (SMAs), and the glamour of this next-bigthing lies in its tax, transfers and transparency benefits. Despite their vanilla names, they’re appearing in an array of investment styles (growth, value, income or ethical), market capitalisation (small, mid or large) and concentration. But they are not the silver bullet that enthusiasts would have investors believe, because their advantages and disadvantages are legion. PHILIPPA YELLAND talks with the players.

Some fund managers may find SMAs threatening as they make it easier for planners to switch clients’ investments away from any particular manager, says Arthur Naoumidis, chief executive of Praemium Limited, a portfolio administration vendor. “For a fund manager to support SMAs, it would be like a turkey voting for Christmas. In the US, fund managers originally resisted SMAs, but there is now over US$1 trillion in SMAs and most managers now offer SMA models,” he says. And some newer, nimble managers who do not have existing books to protect are supporting SMAs, he adds, while existing fund managers are keen to use them to target the large self-managed superannuation market, where they do not have much penetration.

The key benefit of an SMA over a unit trust structure is that legacy capital gains – or losses – are not inherited, says Simon Burge, chief investment officer of Above The Index (ATI) Asset Management. “The benefits of taxation optimisation are available to any class of investor, whether they are an individual at the highest tax rate, a company, a retiree or super fund,” he says. Burge says the tax optimiser embedded in the technology provided by OneVue, its administrator, enables ATI to parcel-pick securities for each class of investor, potentially leading to a greater after-tax return than they would have received in a unitised environment. The managed account family resembles a matrioshka set of Russian dolls. Equity fund SMAs can be held within Unified Managed Accounts (UMAs), says Connie McKeage, chief executive of OneVue. UMAs let clients invest in term deposits, direct property, instalment warrants, commodities and many other investments.

An Individually Managed Account (IMA), is the smallest relative, and tends to contain stocks only. The broadening range of mandate types provides SMA investors with exposures other than listed Australian equities. If clients already hold existing stocks, then these stocks can be transferred in-specie into an SMA and filtered into the chosen model portfolios. AMP Financial Services has just joined the field by partnering with New Zealand-based technology provider FNZ to access its underlying software. According to Paul Sainsbury, director of AMP’s product development, SMAs provide financial planners with a more efficient direct equities solution to recommend to clients: the adviser focuses on which investment manager and strategy is more suitable to the client’s objectives rather than recommending individual shares. “SMAs are suited to high-networth individuals who typically have a more sophisticated level of investment knowledge than other retail investors,” he says.

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