Ausbil Dexia also uses OneVue’s SMA technology because its investors – the beneficial owner of the underlying securities – “will enjoy a more direct and flexible experience,” says Mark Knight, head of retail business at the manager. But this transparency doesn’t suit all investors. The operation of an SMA is no more complex than any of its relatives, says ATI’s Burge. “We use a UMA, which has an SMA within it, and in our experience advisers can save time by not having to issue a statement of advice for every investment decision for every client. All is covered in the one.” He says other benefits include: • the administrator’s batchprocessing of trades and corporate actions, and pooling of trades, enables economies of scale for the advisor • the transferring of securities in and out of clients’ mandates (as a flagged holding) avoids the need to realise capital gains when entering and leaving the scheme • receiving at tax time a consolidated audited report for all the advisors’ client investments in the SMA Managed funds ‘on steroids’ Critics of SMAs dismiss them as managed funds pumped up on steroids.
But providers counter that SMAs are just another type of product offering benefits that investors may not be getting from more conventional managed funds. As clients are the beneficial owners of the underlying share portfolios, says AMP’s Sainsbury, they can avoid embedded capital gains and enjoy better access to dividends, franking credits and tax losses (as losses can’t be distributed out to clients by managed funds). “As tax is a significant cost for most investors, having access to more tax efficient investment solutions is important,” he says. BlackRock’s James Langlands, who is co-head of the manager’s customised portfolio service, says the attractive thing about SMA portfolios for advisers and clients is that fees are generally lower than the management expense ratios that apply to wholesale managed funds. Managers distributing through an SMA “do not have to account for a range of costs that they would in a managed fund,” such as custody fees, unit pricing and other costs, he says. In addition to ongoing management fees, transaction fees are also generally lower within an SMA environment, he adds.
The cost of trading is potentially reduced because at an SMA level, investments are netted daily, minimising the actual trades required and passing on the benefits to the individual client. Many SMAs offer blending so clients can see all their SMA holdings as a single portfolio, regardless of the number of other accounts, whether UMAs or IMAs, they are linked to. Generally, Langlands says, clients benefit most from an SMA that also offers blending within their individual portfolio, so trades between linked accounts are netted at the client level. This means the cost of switching from one account to another is minimised and the client continues to benefit from reduced capital gains tax (CGT) events and maximised flexibility. It’s a (too) small world A criticism of the SMA segment is that it has been dominated by Australian equities mandates.
