What Are Separately Managed Accounts? A Guide for Modern Allocators

For sophisticated investors, the choice between a one-size-fits-all investment and a tailored solution is clear. This preference for personalization is the essence of a Separately Managed Account (SMA)—a professionally managed portfolio where the investor directly owns every underlying asset. This structure offers a degree of customization and transparency that is simply unavailable in pooled vehicles like mutual funds or ETFs.

Think of it this way: an SMA is the bespoke suit of the investment world, custom-tailored to fit an individual's specific financial profile, risk tolerance, and long-term objectives.

What Are Separately Managed Accounts?

A Separately Managed Account is a private portfolio of assets, handled by a professional investment firm but held entirely in the investor's name. When you invest in a mutual fund, your capital is pooled with that of thousands of other investors to buy shares of the fund itself. An SMA, as the name implies, keeps your assets completely separate.

This structure allows a money manager to craft and actively manage a portfolio tailored to a unique financial picture, considering everything from risk appetite and long-term goals to specific tax situations or ethical mandates. It’s a truly bespoke approach to asset management.

Key Characteristics of SMAs

The primary appeal of an SMA is its tailored nature, which extends far beyond simple "conservative" or "aggressive" risk models. For allocators with complex needs—such as high-net-worth individuals (HNWIs), family offices, and institutions—this level of detail is a critical advantage.

Here are the core features that define this investment vehicle:

• Direct Ownership: The investor holds the title to every individual stock, bond, or digital asset in the account. This is a crucial distinction from merely owning a share of a fund that holds those assets.

• High Customization: The investment strategy can be fine-tuned to precise needs. An investor can exclude specific industries, apply ESG screens, or build a portfolio around existing concentrated positions.

• Professional Management: A dedicated portfolio manager or team handles all buying and selling, actively managing the account based on the agreed-upon strategy.

• Transparency: Because the investor owns the underlying assets, they have a clear, real-time view of every holding and transaction in the account.

The core value proposition is simple yet powerful: an SMA provides institutional-grade portfolio management with a level of personalization previously reserved for the ultra-wealthy, all while giving the investor direct ownership and control over their assets.

It's no surprise this model is gaining significant traction. Investment in SMAs surged to nearly $2.2 trillion in 2023, more than doubling from just five years prior. This signals a major shift in how sophisticated investors approach portfolio construction.

To make the distinction clearer, let’s quickly compare an SMA to the more familiar mutual fund.

Separately Managed Accounts vs Mutual Funds at a Glance

This table breaks down the fundamental differences between the personalized SMA approach and a traditional pooled fund.

As you can see, the choice isn't about which one is "better," but which one is right for specific circumstances. While mutual funds offer simplicity and accessibility, SMAs provide a level of control and personalization that is simply unmatched for allocators with more complex needs.

The Strategic Advantages of Using an SMA

While the structure of an SMA is notable, its real power comes from the strategic edge it provides. Sophisticated allocators, from high-net-worth individuals to institutional funds, are drawn to SMAs for more than just direct ownership; it's the powerful trio of customization, transparency, and tax efficiency working in concert.

The growing popularity of this model tells the story. By 2025, SMAs are expected to constitute about 18% of the U.S. wealth management market—a significant portion of a sector valued at over $15 trillion. This isn't just a trend; it's a fundamental shift driven by the demand for a personalized approach that aligns investments directly with an investor's unique goals and risk tolerance.

Radical Customization and Control

The ability to completely tailor a portfolio is arguably the most celebrated benefit of an SMA. This is not about choosing from a limited menu of risk models. With an SMA, an investor or their advisor works directly with a manager to build a portfolio from the ground up, reflecting specific needs and constraints.

This level of control means an allocator can:

• Implement Sector Exclusions: Instruct a manager to avoid entire industries—such as fossil fuels, tobacco, or gaming—that do not align with personal or ethical values.

• Apply Complex ESG Frameworks: For family offices or institutions with strict Environmental, Social, and Governance mandates, an SMA allows for the surgical application of screening criteria to every holding.

• Incorporate Concentrated Positions: An executive with a large, pre-existing holding in their company's stock can have an SMA manager build a diversified portfolio around that position, creating a complementary strategy.

This bespoke approach ensures the portfolio is a true reflection of the investor's total financial picture, not just another off-the-shelf product.

The core benefit of customization is the alignment of assets with an investor's total financial life. An SMA doesn't exist in a vacuum; it is actively shaped to fit with an individual's specific values, existing holdings, and long-term objectives.

Complete Portfolio Transparency

Another critical advantage is the unparalleled transparency SMAs provide. Because you own every underlying security directly, there are no opaque structures. This is a stark difference from pooled vehicles like mutual funds, where holdings may only be disclosed quarterly.

With an SMA, an investor gets a 24/7, real-time view of:

• Every single holding in their account.

• Every transaction the portfolio manager executes.

• The exact cost basis for each security.

This direct line of sight builds trust and provides the granular data needed for informed decision-making. It also allows for more effective oversight and precise risk management, as every position can be monitored individually. To see how this data can be woven into a broader strategy, review our guide on risk management and hedging.

Enhanced Tax Efficiency

For investors in taxable accounts, particularly HNWIs, tax management is a critical component of maximizing returns. Here, SMAs offer a distinct advantage. Because the investor owns the individual securities, their manager can engage in strategic tax-loss harvesting.

This powerful technique involves selling specific securities at a loss to offset capital gains realized from other investments. This is simply not possible in a mutual fund, where capital gains are distributed to all shareholders, regardless of their individual tax situations. By actively managing the tax impact of every trade, an SMA manager can significantly boost a portfolio's after-tax returns—a critical benefit for long-term wealth accumulation.

How Separately Managed Accounts Actually Work

To understand what a separately managed account is, it helps to move beyond abstract concepts and examine its operational flow. An SMA isn't a product you buy off the shelf; it’s a personalized service. The entire process is built for clarity and direct control, with a clear separation of roles.

The journey begins with a deep discovery process to define your specific goals, risk tolerance, and any personal constraints (like industry exclusions). This initial mandate serves as the foundational blueprint for the investment strategy. Once established, an account is opened in your name with a qualified custodian, ensuring your assets are held securely and kept completely separate.

This careful setup ensures the portfolio is built from the ground up to reflect your unique financial picture. The workflow below provides a high-level view of how these components connect.

This simple flow—defining goals, building the portfolio, and continuous monitoring—is the engine that powers the SMA, ensuring it remains aligned with the investor's original intent.

The Key Players and Their Roles

An SMA is brought to life through the partnership of three distinct parties, each with a specific function. Understanding these roles is key to seeing how the model delivers on its promises of customization and transparency.

• The Investor (You): As the asset owner, you hold direct title to every security in the account. You set the high-level strategy, define the rules of engagement for the manager, and retain ultimate control.

• The Financial Advisor (The Strategist): Many investors work with a financial advisor who helps define investment goals and select the right money manager. The advisor acts as the strategic architect and primary point of contact, ensuring the manager’s day-to-day actions align with the broader financial plan.

• The Professional Money Manager (The Executor): This is the specialist hired to execute the investment strategy. They have discretionary authority to buy and sell securities on your behalf, but they can only operate within the strict guidelines you’ve established. Their job is to actively manage the portfolio to meet your objectives.

This clear separation of duties creates a natural system of checks and balances, which is a major reason why SMAs are trusted by HNWIs and family offices. The manager executes, the advisor oversees, and you own it all.

The Ongoing Management and Reporting Cycle

Once your account is funded and the manager begins trading, the process shifts into a continuous cycle of active management and reporting. The manager constantly monitors the markets and your portfolio, making adjustments as needed to adhere to the mandate. This could mean rebalancing holdings, taking profits, or strategically selling a position at a loss to offset capital gains (tax-loss harvesting).

One of the most powerful features of an SMA is its commitment to radical transparency. Unlike a mutual fund where you might get a report every quarter, an SMA gives you and your advisor constant, on-demand access to every holding, every transaction, and every performance metric.

This complete transparency is what truly sets SMAs apart. You receive regular, detailed reports that break down performance, list every individual asset you own, and show a full record of every trade. This clear line of sight empowers you to have more meaningful, data-driven conversations with your advisor and manager about strategy and performance. This kind of insight is essential for success, as you can explore further in our guide to portfolio construction and allocation.

Ultimately, this structure demystifies the investment process, transforming it from a "black box" into a transparent and collaborative partnership.

SMAs in Traditional Finance vs. Digital Assets

Separately managed accounts are not a new innovation. They have been a trusted tool in traditional finance (TradFi) for decades, used by sophisticated allocators to gain professional management for their stock and bond portfolios while retaining customization and transparency. This long history provides the perfect context for understanding why SMAs are now becoming a critical structure in the digital asset ecosystem.

In TradFi, a typical SMA holds assets like equities and bonds. An investor might hire a manager to execute a specific strategy—for instance, a US large-cap growth portfolio—but with custom rules. The investor could mandate ESG-related exclusions or require the manager to build a portfolio around a large, pre-existing stock position. It has always been about combining professional strategy with personal control.

This model is especially prevalent in the hedge fund industry. Institutional investors and wealth platforms are increasingly moving away from commingled fund structures. Since 2010, assets in hedge fund SMAs have grown by approximately 600%, with their market share more than doubling. This is a clear signal that sophisticated investors demand the direct ownership, transparency, and oversight that SMAs provide. You can learn more about the rising popularity of SMAs in hedge funds to see the data behind this significant shift.

The Crypto SMA: A New Frontier

While the core principles of direct ownership and customization are the same, applying the SMA structure to digital assets addresses a new set of challenges and opportunities. The crypto market operates 24/7, is inherently more complex, and involves novel risks. In this context, an SMA is more than a personalized portfolio; it is a secure, professionally managed gateway to advanced crypto-native strategies that are often too complex or risky for investors to manage themselves.

A crypto SMA can hold a diverse range of assets beyond just Bitcoin and Ethereum. The manager, a specialist deeply embedded in the digital asset ecosystem, can execute strategies that have no equivalent in traditional finance.

The real evolution is in the application. A crypto SMA takes the trusted, transparent structure of a traditional SMA and applies it to a new universe of alpha-generating opportunities, from on-chain yield farming to complex derivatives.

This model solves a critical problem for allocators. It bridges the gap for those who want exposure to crypto's potential but require the professional management, robust security, and institutional-grade reporting they are accustomed to.

Comparing Use Cases: TradFi vs. Crypto

The application of SMAs differs significantly between the two financial worlds. While both prioritize tailoring the portfolio to the individual, the underlying assets and available strategies create very different use cases.

A side-by-side comparison highlights how the SMA model adapts:

This evolution is driven by market demand. As more institutional capital enters the digital asset space, allocators are demanding familiar, reliable structures. The SMA is a perfect fit—a robust, transparent, and flexible vehicle for deploying capital in this emerging asset class. Understanding this integration is crucial for any modern allocator, and you can explore more on crypto’s role in institutional adoption).

Ultimately, the growth of the crypto SMA signals a maturing market. It shows that digital assets are moving beyond simple buy-and-hold investing and into a new era of sophisticated, professionally managed finance.

What Does the Future Hold for SMAs?

The separately managed account represents a significant evolution in asset management. Investors are increasingly moving beyond one-size-fits-all funds, demanding portfolios that align with their personal values, tax circumstances, and unique market views. The SMA is purpose-built for this new paradigm.

What was once a niche offering for the ultra-wealthy is quickly becoming a cornerstone of the wealth management industry, driven by its core tenets of direct ownership and deep personalization.

Market data validates this trend. There is a strong appetite for this structure, with forecasts showing global SMA assets are on track to reach $3.6 trillion by 2026. Paired with the related trend of direct indexing, this represents a major disruption. Deloitte expects SMA platforms alone to manage over $2.5 trillion by 2026, demonstrating their accelerating growth. You can explore the complete industry outlook and see more of these projections for investment management from Deloitte.com.

The Rise of Hyper-Personalization with Direct Indexing

One of the biggest drivers of the SMA’s future is the growth of direct indexing. This can be thought of as customization at scale. Instead of buying an S&P 500 ETF, an SMA using a direct indexing strategy would purchase all 500 of those individual stocks directly in the investor's name.

This unlocks an unprecedented level of control.

• Granular Tax-Loss Harvesting: A manager can sell specific losing stocks to offset gains throughout the year, a far more precise tactic than selling an entire fund position.

• Pinpoint ESG Screening: An investor can exclude individual companies that don't meet their ethical standards, rather than relying on a pre-packaged ESG fund's broad definitions.

• Factor Tilting: The portfolio can be fine-tuned to emphasize specific investment styles, like value or momentum, without adding new products.

Simply put, direct indexing—powered by the SMA framework—transforms passive investing into an active, highly personalized strategy.

When you combine the SMA structure with direct indexing, you get a remarkably powerful tool. It brings together the low-cost, broad exposure of an index with the tax-smart, bespoke management you’d expect from a private portfolio.

Technology is Making SMAs More Accessible

Historically, high operational costs and significant investment minimums made SMAs inaccessible to most investors. That is changing rapidly, thanks to significant advancements in portfolio management and trading software. These new platforms automate the complex reconciliation and reporting that made it so expensive to manage hundreds of individual accounts.

This technological leap is having two major impacts:

1. Lowering the Barrier to Entry: With reduced operating costs, managers can now offer SMAs to a much wider group of investors. Minimums that were once $1 million or more are now commonly available in the $100,000 to $250,000 range.

2. Boosting Efficiency: For family offices and institutional investors, modern SMA platforms provide a scalable way to manage multiple strategies and managers under one unified framework.

This democratization means the key benefits of SMAs—customization, transparency, and tax efficiency—are no longer exclusive to the largest players. They are becoming an essential part of the modern investment toolkit for any serious allocator, cementing the SMA’s role at the heart of wealth management's future.

Finding the Right Crypto SMA Strategy on Amber Markets

Understanding the SMA structure is the first step. The next challenge, particularly in digital assets, is finding and evaluating credible, high-performing SMA strategies. The crypto market can be opaque, making it difficult for investors to discover and compare quality opportunities. This is precisely why a specialized discovery platform is an essential tool for any serious allocator.

Amber Markets serves as a curated gateway to premier crypto SMAs. The platform was built to solve the key challenges that HNWIs, family offices, and institutional funds face when deploying capital into digital assets. It represents a shift away from scattered PDF pitch decks and informal communication toward a centralized, professional environment built for data-driven decisions.

Solving the Discovery and Due Diligence Problem

One of the biggest hurdles allocators face is simply finding and vetting crypto-native managers. Unlike in traditional finance, where managers often have long, documented track records, the crypto space requires a more discerning approach. Amber Markets tackles this problem head-on by creating a pre-vetted ecosystem of professional SMA managers.

Our platform is designed to bring structure and clarity to the search process:

• Manager Due Diligence: We perform the initial heavy lifting. Every manager and strategy on Amber Markets must meet our specific criteria for operational integrity and professional standards, serving as a crucial first-pass filter that saves time and reduces risk.

• Standardized Analytics: We ingest data from all managers and present it in a clean, uniform format. This allows allocators to analyze performance, risk metrics, and strategy details on a true apples-to-apples basis.

• Transparent Reporting: With clear, consistent reporting across every strategy, you can easily track performance and understand your exposures without trying to decipher dozens of different reporting styles.

By bringing order to the process, Amber Markets enables allocators to shift from tedious, manual research to efficient, data-driven analysis.

The real value here is creating a transparent marketplace. By consolidating credible crypto SMA strategies and standardizing their data, Amber Markets gives allocators the ability to benchmark performance and conduct due diligence with a level of rigor that was nearly impossible to achieve before.

A Platform Built for Sophisticated Allocators

For a family office or an institutional investor, the stakes are high. You need more than just access—you need robust analytical tools and genuine confidence in the managers you select. Amber Markets was built from the ground up to meet these exacting demands, providing the sophisticated tools required for serious portfolio construction.

This sharp focus allows allocators to navigate the digital asset space with confidence, armed with the information they need to make strategic decisions. Ultimately, our platform serves as a vital bridge, connecting discerning capital with professional crypto-native talent in a secure and transparent environment. It provides the framework for answering the most important question that follows "What are separately managed accounts?"—which is, "Which one is right for my portfolio?"

Your Top Questions About SMAs, Answered

Once you understand the SMA concept, practical questions naturally arise. Let's address some of the most common ones that allocators have before they commit capital.

What's the Minimum Investment to Get Started?

In the past, SMAs were largely the domain of institutional investors, often requiring $1 million or more to open an account. However, technology has fundamentally changed the landscape by automating much of the administrative work that made them costly to operate.

This enhanced efficiency has significantly lowered the barrier to entry. Today, many high-quality SMA strategies are accessible with initial investments in the $100,000 to $250,000 range. Some platforms are even beginning to offer options below that threshold, opening the door for a broader range of HNWIs to access personalized portfolio management.

How Do Fees Work for SMAs?

A key benefit of the SMA model is its fee transparency. Unlike the complex, sometimes hidden costs associated with pooled funds, SMAs typically utilize a straightforward structure.

The most common model is a fee based on a percentage of assets under management (AUM). This fee is often tiered, meaning the percentage rate decreases as the account value grows.

This single, "all-in" fee generally covers the manager's services, transaction costs, and administration. Investors are unlikely to encounter ancillary charges like 12b-1 fees or sales loads, providing a much clearer picture of the total cost of ownership.

The SMA fee structure is all about alignment. The manager's compensation is tied directly to the assets they're managing for you, creating a partnership that's focused on growing your portfolio.

Are SMAs Still Just for Institutions?

Not anymore. While institutions and family offices were early adopters, the landscape has shifted dramatically. The core benefits that make SMAs attractive—customization, transparency, and tax efficiency—are now in high demand among a wider audience.

More and more individual investors are seeking:

• True Personalization: The ability to shape their investments around personal values or unique financial goals.

• Complete Transparency: A clear, real-time view of every single holding and transaction in their account.

• Smarter Tax Management: Using strategies like tax-loss harvesting to boost after-tax returns.

This demand, combined with lower investment minimums, has made SMAs a compelling option for a much broader group of serious investors, including HNWIs and even retail investors with substantial portfolios.

Ready to explore a curated universe of crypto-native SMA strategies? Fensory provides the institutional-grade discovery and analytics platform to find, compare, and connect with premier digital asset managers. Start your journey on fensory.com.