Separately Managed Accounts (SMA)

Peter Katevatis - Sep 19, 2016
As we enter an era of full disclosure and transparency, I want to highlight Separately Managed Accounts or SMAs in relation to mutual funds.  The investment industry is riddled with embedded fees and charges that hinder investor returns which add to

As we enter an era of full disclosure and transparency, I want to highlight Separately Managed Accounts or SMAs in relation to mutual funds.  The investment industry is riddled with embedded fees and charges that hinder investor returns which add to the profits of financial institutions.  This is particularly evident with traditional mutual funds.

 

For example, one of the largest mutual funds in Canada – Investors Dividend Fund Series A has assets of almost $16 billion with a Management Expense Ratio (MER) of 2.39%.  This fund is mainly a buy and hold fund, but it does incur some additional trading costs so the total expenses are 2.41% which is not the number they report.  You have to dive deep into the fine print to find it.  See below:

 

Investors Dividend Fund - Series A fees

 

With a SMA (Separately Managed Account) you get similar professional management with some MAJOR benefits:

  • Full transparency on all your holdings and fees on a daily basis
  • Fees are generally lower and can be written off as “Professional Fees”
  • No taxes payable on ancient gains carried forward

The last point is a bit technical, but basically when you buy a mutual fund your investment is part of a pool of investments.  Whether or not you owned the fund at the time a fund manager sells a position they have profited on, you will incur the taxable gain.  With the SMA platform the gains (and losses) are your own.

 

Canaccord Genuity Wealth Management has a premier suite of managers to choose from in the SMA platform.  For a full list, look here.  As an example, below is the Sentry North American Balanced SMA.  As a mutual fund you would only see a one line item of your holdings of your investments.  As a separately managed account you see all the holdings and transactions (good and bad) the day they happen.  You don’t have to wait until the end of the fiscal quarter to see what companies you are invested in.

 

Sentry North American Balanced SMA - Canaccord Genuity Wealth Management

 

In the current news-driven era of fast moving markets this can give investors a lot of comfort knowing exactly how their investments are managed.  With complete transparency, professional management, and more favourable fee treatment the Separately Managed Account (SMA) is far superior to mutual funds.

 

Traditionally, SMA accounts used to have minimum accounts sizes of $25M which made them available only to the ultra-wealthy or institutional investors.  Today, the minimum account size has dropped to $100,000 making them accessible to most diligent savers.  Feel free to contact me to see which SMA is right for you.