A separately managed account is an investment account that a professional money manager runs on your behalf, holding stocks, bonds, and other securities in your name

Unlike mutual funds or exchange-traded funds (ETFs), where you own a slice of a pooled investment, a separately managed account (SMA) holds individual securities picked and managed specifically for you. The manager buys and sells within the account based on your goals and risk tolerance, and you receive statements showing exactly what you own. You pay the manager a fee—usually a percentage of the assets they manage—rather than paying per trade or per fund.

The key difference from mutual funds is customization. A mutual fund holds the same basket of stocks for all its investors. An SMA can be tailored to your situation: if you want to avoid certain industries, hold specific stocks you inherited, or have tax concerns, the manager can structure the account around those needs. You also see the actual holdings, not just a fund name.

Key Takeaways

  • A separately managed account holds individual securities chosen and managed by a professional for you alone, not pooled with other investors.
  • You pay the manager a percentage-based fee on assets under management, typically ranging from 0.5% to 2% annually depending on account size and complexity.
  • SMAs offer tax control that mutual funds do not—the manager can harvest losses or time sales to reduce your tax bill.
  • Most SMA programs require a minimum investment, often $50,000 to $250,000, though some firms have lowered minimums in recent years.
  • The manager has discretion to buy and sell without asking permission each time, but you retain ownership and can impose restrictions on what they hold.

How a separately managed account differs from mutual funds and ETFs

In a mutual fund, your money goes into a pool with thousands of other investors. The fund manager buys and sells securities for the entire pool, and you own a proportional share. Everyone in the fund holds the same securities in the same proportions. If the fund holds Apple stock, you own a piece of that Apple position along with every other shareholder.

In an SMA, the manager builds a portfolio of individual securities for you. If you own Apple stock in your SMA, it is your Apple stock—not a shared piece. The manager can sell it on a different timeline than they would sell it in a mutual fund, and they can do so partly for your tax situation rather than only for the fund's overall strategy.

ETFs work like mutual funds: you buy shares of a fund that holds a basket of securities. The difference from mutual funds is mainly how they trade (on an exchange, like stocks) and sometimes lower fees, but the pooling structure is the same.

Who manages the account and what they can do

An SMA is managed by a registered investment adviser, a bank trust department, or a brokerage firm. The manager has discretionary authority, meaning they can buy and sell securities without calling you each time. You sign an agreement upfront that gives them this power within the guidelines you set together.

You can impose restrictions: tell the manager to avoid certain stocks, industries, or countries; to hold a specific position you inherited; or to keep a minimum amount in cash. The manager works within those boundaries. They rebalance the portfolio periodically (moving money between stocks and bonds, for example, to stay aligned with your target allocation) and make tactical decisions about which specific securities to hold.

The manager typically meets with you at least annually to review performance, discuss changes in your situation, and adjust the strategy if needed. You receive quarterly or monthly statements showing every holding and its value.

Fees and account minimums

SMA fees are usually charged as a percentage of assets under management (AUM). A typical range is 0.5% to 2% per year, though it varies by firm, account size, and complexity. A $500,000 account might cost $2,500 to $10,000 annually. Larger accounts often have lower percentage fees—a $5 million account might be charged 0.5% instead of 1.5%.

Most SMA programs have a minimum investment requirement. Common minimums are $50,000 to $250,000, though some firms have dropped minimums to $25,000 or even lower in recent years. A few offer SMAs with minimums under $10,000, often through robo-adviser platforms or as part of a broader wealth management relationship.

In addition to the management fee, you may pay brokerage commissions when the manager trades (though many firms have moved to commission-free trading), and you are responsible for any taxes owed on gains or income the account generates.

Tax advantages and control

One of the main reasons people choose SMAs is tax efficiency. Because the manager controls individual securities in your account, they can time sales to your advantage. If you have a large gain in one stock and a loss in another, the manager can sell the loser to offset the winner—a strategy called tax-loss harvesting. In a mutual fund, you have no control over when the fund sells, so you cannot use losses in your account to offset gains.

The manager can also be mindful of your overall tax situation. If you are in a high tax bracket, they might favor stocks that pay little or no dividend and focus on long-term growth. If you are retired and need income, they can structure the account to generate dividends and interest in a tax-efficient way.

You still owe taxes on any gains or income the account generates—the SMA does not shield you from taxes, but it gives the manager tools to reduce the tax bill compared to a mutual fund or self-directed account.

When an SMA makes sense and when it does not

An SMA is most useful if you have a substantial amount to invest (usually $100,000 or more), want customization based on your specific situation, or care about tax efficiency. If you have inherited a large position in a single stock and want to diversify gradually while managing the tax hit, an SMA is a good fit. If you want to avoid certain industries or companies for ethical reasons, an SMA can honor that.

An SMA is less useful if you have a small amount to invest, are comfortable with a standard mutual fund or ETF, or do not need customization. The fees eat into returns more on smaller accounts, and the benefit of tax-loss harvesting shrinks if you have little taxable income or few gains to offset.

If you are a hands-off investor who does not want to think about your portfolio, an SMA still works—the manager handles it. But you are paying for customization and active management, so make sure you actually need it.

How to open an SMA and what to expect

To open an SMA, you typically contact a wealth management firm, a brokerage, or a bank trust department. You will meet with an adviser to discuss your goals, risk tolerance, time horizon, and any restrictions or preferences. The adviser will explain the fee structure and show you examples of how the account might be invested.

You will sign an investment management agreement that outlines the manager's authority, your restrictions, and the fee arrangement. You will also complete a questionnaire about your financial situation and investment experience. Some firms require a background check or verification of your identity and address.

Once the account is open, you transfer funds (usually by wire or check), and the manager begins building the portfolio. This typically takes a few weeks. You will receive an initial statement showing the holdings and their values, and then regular statements (monthly or quarterly) as the manager makes changes.

Frequently Asked Questions

Can I tell the manager not to buy or sell certain stocks?

Yes. You can impose restrictions upfront—tell them to avoid a particular company, industry, or country, or to hold a specific stock you own. The manager must work within those boundaries. If your situation changes, you can update your restrictions, though the manager may need time to adjust the portfolio.

What happens if the manager makes a bad decision and loses money?

Investment losses are your responsibility. The manager is not liable for market declines or poor performance as long as they followed your investment agreement and acted in your best interest. If the manager breaches their duty—for example, by ignoring your restrictions or making trades that are clearly unsuitable for your situation—you may have a claim, but this is rare and requires legal action.

Is my money safe in a separately managed account?

Your securities are held in your name at a custodian (usually a major brokerage or bank), not by the manager. If the manager goes out of business, your holdings remain yours. If the custodian fails, your account is protected by SIPC (Securities Investor Protection Corporation) up to $500,000 per account type. Your money is not insured against investment losses.

How often does the manager rebalance the portfolio?

Rebalancing frequency varies by firm and strategy. Some managers rebalance quarterly, others annually, and some rebalance only when allocations drift significantly from targets. Ask the manager upfront how often they rebalance and under what conditions they make changes.

Can I withdraw money from my SMA whenever I want?

Yes, you can withdraw funds at any time. The manager will sell securities as needed to cover your withdrawal. Be aware that selling may trigger capital gains taxes, and the manager may ask you to wait a few days for the sale to settle before the money reaches your bank account.