Sound Advice: September 23, 2026

Is there a good reason to work with an investment manager who uses separately managed accounts?

Yes—but the fact that an investment manager uses separately managed accounts (SMAs) is not, by itself, a good reason to hire that manager. In many cases, an SMA is simply a more expensive way of implementing an investment strategy you could get through low-cost ETFs or mutual funds.

What an SMA actually gives you:

With an SMA, you own the individual securities directly rather than owning shares of a pooled fund.

That can provide some legitimate advantages:

• Tax-loss harvesting: The manager can sell individual positions that have losses while maintaining similar market exposure.
• Tax customization: You can exclude particular stocks or industries or manage gains around your individual tax situation.
• More transparency: You can see exactly which stocks and bonds you own.
• Customization: The portfolio can be constructed around specific restrictions or concentrated positions.
• Potentially better tax management: A skilled manager can coordinate buying and selling with your broader tax circumstances.

Those can be valuable—particularly for a large taxable portfolio.

But here's the catch

If the manager charges, say, 1% annually, and the SMA is holding a portfolio that is essentially a collection of large-cap U.S. stocks that could be replicated with an inexpensive index ETF, you have to ask:

What am I getting for that extra 0.8%–1% per year?

You're not automatically getting higher returns.

And the manager has to overcome that fee through some combination of tax management, risk management, customization or superior investment decisions.

SMAs may make sense if you have a sizable taxable portfolio + substantial unrealized gains + meaningful tax-management opportunities + a manager who is genuinely good at tax-aware portfolio management.

For example, suppose you have $2 million of appreciated individual stocks. A manager who can gradually diversify the portfolio, harvest losses, manage gains, and coordinate the sales with your tax situation may provide real value.

That's very different from:

"$2 million in an SMA holding 100 large-cap stocks because that's our proprietary investment strategy."

In the latter case, you’d be better off owning an inexpensive index fund.

If the manager uses SMAs, it would be helpful to ask the manager five questions:

1. What do you do in an SMA that I couldn't accomplish with low-cost ETFs?
2. What is my all-in annual cost, including the SMA's underlying expenses and your management fee?
3. How much of your value comes from tax-loss harvesting and tax management versus security selection?
4. Can you show me my after-tax results versus an appropriate low-cost index benchmark?
5. What would you do for me that I couldn't reasonably do with a simple three- or four-fund portfolio?

That last question is particularly revealing.

If the answer is primarily "we pick better stocks," be skeptical.If the answer is "we manage taxes, concentrated positions, withdrawals, estate considerations, and risk in ways that are specific to you," then the SMA—and potentially the investment manager—may be worth paying for.