The ever strengthening case for SMAs


Tuesday 13 October 2015

The benefits and how to get clients on board

In the current volatile environment, Separately Managed Accounts (SMAs) offer investors of all sizes confidence, agility and control – and advisers a new means of creating scale. Alex Morris, Head of Managed Accounts Development at Macquarie Group, looks at where and how SMA pioneers are getting traction and explores different approaches to introducing them to clients.

"When SMAs arrived in the United States over two decades ago, they were predominantly sold as a premium service to high net worth investors. Over this period technology has advanced and investment managers have recognised the benefits of the managed account format, resulting in the proliferation of SMA options and solutions suitable for a broad range of client segments. A similar evolution has been taking place in Australia, and SMAs are now becoming available on Wrap platforms. Positioned between an individually managed portfolio and a managed fund, SMAs offer investors higher levels of transparency and agility. From an adviser’s perspective, they also enable scale, providing an extremely efficient means of offering clients direct equity exposure."

Sedat Papagan, a Senior Financial Planner at GHR Financial Planning, has begun transitioning his existing managed funds clients to SMAs over the past year. He says that industry conditions in Australia make the market ripe for the product.

"The combination of increased market volatility and the compliance obligations placed on financial advisers definitely make SMAs more attractive. Clients have an expectation that, if the market crashes, we can get them out of trouble. In reality, our compliance obligations prevent us from being able to move quickly to get out of risky markets. SMAs change the game. They give everyone access to institutional grade responsiveness."

Although SMAs are often positioned for and largely used for sub-$2 million investors, they're also crossing over into in the high net worth and affluent markets. Macquarie Group Investment Adviser Nick Walter has a $40 million investor with 3 SMAs. "This client didn't want a stock broking relationship and didn't want something they had to bother with every day. They like the fact that it’s professionally managed and comes with an overlay of advice."

They like the fact that it's professionally managed and comes with an overlay of advice

Jarad Stirling, the Principal of Stirling Financial Consulting, says he also uses SMAs across the board. "There's no real age bracket or dollar limitation. Obviously, they're not good for people who want the control to select stocks. But otherwise there really aren't any limiting factors."

How to discuss SMAs with clients

SMAs have a number of potential benefits for clients, depending on a client's goals and circumstances. Some clients are drawn to the transparency and control; others choose an SMA for its cost advantages alone and leave the investment decisions to the professionals; others like the tax benefits of holding equities.

Sadat Papagan suggests keeping the SMA discussion at a high level with all but the most sophisticated clients. "SMAs can be perceived as complex, particularly for clients with limited investment knowledge. Often a client struggles to 'get it' even when you're sitting in front of them. It's also important to simplify the message. Most clients don't want and don't need to look under the hood."

In his SMA conversations, Jarad Stirling emphasises the expertise that clients are tapping into: "I inform my clients that their investment will be actively managed by professional financial analysts looking at different markets and putting their best ideas forward. Plus, the managers have preservation of capital front of mind."

To access more information and resources on SMAs, and to learn about Macquarie's SMA offering, visit


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