Separately Managed Accounts: Tax Efficiency and Tailored for You

When you buy shares of a mutual fund, your assets are pooled with those of other fund shareholders. Professional fund managers may work hard to pursue clearly stated objectives — but they certainly can’t consider your personal situation.

If you are interested in a customized investment approach, a separately managed account (SMA) is a professionally managed individual investment account, in which you hold and control shares of securities such as stocks and bonds. In an SMA, your assets are not commingled with those of other investors, which may present opportunities to better manage your tax liability.

It was once common for SMAs to require a minimum of $1 million in investable assets. Today some SMAs have minimums as low as $50,000, so they are now available to a wider group of investors as an alternative to mutual funds.

Personalization and potential tax benefits

With an SMA, you have the flexibility to fine-tune your asset allocation for your own unique circumstances and priorities. You may be able to set sector guidelines, exclude certain industries or specific securities, and place securities you already own in an SMA.

You can also coordinate the sale of specific securities with the rest of your overall financial plan, which can help improve tax efficiency. Each security held in an SMA has an individual cost basis. That allows you to make specific tax-motivated moves. For example, you could ask your financial professional to sell a position with an unrealized loss to help offset capital gains, potentially reducing your income tax liability.

By contrast, when you buy shares of a mutual fund, you automatically inherit a share of its embedded tax liabilities. A mutual fund is required to pay out realized capital gains to all fundholders, so if you buy shares right before a distribution date, you may receive a distribution and owe capital gains taxes even if you held your shares for only a short amount of time. And if a fund manager sells some of a fund’s holdings at a profit when other holdings drop in value, the fund can distribute capital gains even though shares have declined in value during the year.

Professional perspective

With an SMA, your financial professional may rely on a separate asset manager (or multiple managers) to handle the day-to-day portfolio decisions. For example, one asset manager may specialize in bonds, while another focuses on stocks. An SMA must be managed by a registered investment adviser, who may be independent or part of the same firm as your financial professional.

Total U.S. Financial Assets, Q1 2025

Sources: Cerulli Associates, October 7, 2025; Federal Reserve, 2025

Finally, don’t expect to weigh in on every trade, as you might with a brokerage account. Within the guidelines you set, the asset managers typically have discretion to implement strategies they feel will provide better returns, though you’ll always be able to track what has been bought and sold on your behalf.

The return and principal value of stocks, bonds, and mutual funds fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. Asset allocation is a method used to help manage investment risk; it does not guarantee a profit or protect against investment loss. Unlike traditional brokerage accounts, which are commission based, SMA fee structures are asset based. They typically cover the investment management fee, trading costs, custody, reporting, and other financial services. There is no guarantee that working with a financial professional will improve investment results. Before investing in a mutual fund, carefully consider its investment objectives, risks, fees, and expenses, which are contained in the prospectus available from the fund or your financial professional. Read the prospectus carefully before investing.

This information is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2026 Broadridge Financial Solutions, Inc.