There is a growing category of investment structure that sits somewhere between owning shares directly and investing through a managed fund. It combines professional portfolio management with direct asset ownership, and it is attracting increasing interest from Australian investors who want more transparency and tax control than a traditional managed fund can offer.
This structure is called an SMA. In this blog, we will explore what is meant by using a separately managed account, and why it is worth understanding.
SMA Investing Explained: What It Is and How It Works
A Separately Managed Account (SMA) is a professionally managed investment portfolio where the investor retains direct beneficial ownership of the underlying assets. This is the defining feature that sets it apart from a managed fund, where the assets are pooled and held in the name of the fund, not the individual investor.
In practical terms, when you invest through an SMA, your name is attached to each share or security in the portfolio. A professional investment manager makes the day-to-day decisions about what to buy, when to rebalance, and how to respond to market conditions, but those securities are in your account, not in a pooled vehicle with other investors.
Research from the 16th SPDR ETFs / Investment Trends Managed Accounts Report, which surveyed 946 financial advisers across Australia, found that three in five Australian financial advisers now use managed accounts, with 71% of their clients’ total assets held in these structures. The market for direct investor SMAs is smaller but growing as the products become more accessible.
An SMA vs A Managed Fund: How Do Both Differ?
This is the comparison most investors make when they first encounter the structure. The differences come down to four key areas:
Ownership
In a managed fund, you own units in a trust. The fund owns the underlying assets. In an SMA, you own the underlying assets directly. This distinction has significant implications for tax, flexibility, and transferability.
Tax Treatment
One of the most significant advantages of SMAs over managed funds relates to capital gains. In a managed fund, capital gains realised by other investors’ redemptions can be distributed to you even if you did not trigger them. An SMA eliminates this problem because your portfolio is yours alone. Capital gains and losses are calculated specifically for your holdings and cannot be affected by other investors’ behaviour. This makes tax-loss harvesting and timing of capital events much more precise.
Transparency
An SMA gives you full visibility over every security in the portfolio. You can see exactly what is held, at what cost base, and with what weighting, at any point in time. A standard managed fund typically reports holdings periodically, not in real time, and the underlying securities may not be visible at all.
Transferability
Because you own the underlying securities directly, an SMA can often be transferred to a different manager without liquidating the portfolio. Switching from one managed fund to another typically triggers a capital gains tax event and transaction costs. With an SMA focused on the same asset class, you may be able to change managers while retaining most of the underlying portfolio intact, minimising tax friction significantly.
What Are the Benefits of SMA Investing?
These benefits include transparency, tax efficiency, flexibility, and access to professional management. Here is a summary:
| Benefit | Managed Fund | SMA |
| Direct ownership of assets | No (unit-based) | Yes |
| Real-time portfolio transparency | Limited | Full |
| Capital gains tax control | Shared with other investors | Investor-specific |
| Portfolio transferability | Requires liquidation | Often transferable in-specie |
| Customisation | Standardised | Exclusions and tilts possible |
| Professional management | Yes | Yes |
SMAs also allow investors to participate in share purchase plans offered by ASX-listed companies, which managed funds often cannot access at a meaningful scale for individual investors. This can be a practical advantage in the Australian market where SPPs are relatively common corporate events.
At Rivkin, our private wealth management team constructs and manages bespoke investment portfolios for clients who want professional oversight without losing sight of their own assets. Get in touch with us to explore how we work!
Who Is SMA Investing Suited To?
SMAs are generally better suited to investors with a meaningful pool of capital to deploy. While minimum investment thresholds vary by provider, most SMAs become genuinely cost-effective from around $100,000 to $250,000 or more in investable assets.
They are particularly well-matched for:
- High-income or high-net-worth investors where capital gains management has a meaningful dollar impact.
- Investors who have previously held direct shares and want to transition to professional management without triggering a large tax event.
- Those who want clear, real-time transparency over what their money is invested in.
- Investors with specific ethical or sector-based exclusion requirements that a pooled fund cannot easily accommodate.
- SMSF trustees who want to access a managed portfolio structure within the fund while retaining ownership of the underlying assets.
Are There Any Disadvantages?
SMAs are a sophisticated structure, and they are not without trade-offs.
They generally require a higher minimum investment than a retail managed fund, which has seen fee compression bring minimums down to very small amounts in recent years. The administrative complexity of directly owned assets also means SMAs are usually accessed through a platform or wrap account rather than held independently, adding a layer of platform fees to the overall cost structure.
Customisation is an advantage, but it also requires investors to have a view on what exclusions or tilts they want. For investors who prefer a fully delegated approach where no decisions are required of them, a simpler managed fund may be a more appropriate starting point.
How SMAs Sit Within a Broader Investment Strategy
SMAs are not designed to be an investor’s entire portfolio. They function best as a component of a broader asset allocation, typically handling the direct equities exposure while other asset classes are managed through complementary vehicles.
For Australian investors specifically, the combination of direct ownership, franking credit efficiency, and capital gains control that SMAs offer can add material value compared to equivalent exposure through a pooled fund, particularly for investors in higher marginal tax brackets.
Conclusion
A Separately Managed Account bridges the gap between the convenience of professional management and the advantages of direct ownership. It offers a level of transparency, tax efficiency, and flexibility that standard managed funds cannot match, and for investors with the right balance and the right advice behind them, it can be a genuinely superior structure.
Understanding what is meant by separately managed account investing, and how it compares to the alternatives, is the starting point for deciding whether it belongs in your portfolio.
If you have been considering your investment structure and want to understand whether a professionally managed portfolio is right for your situation, an investment portfolio review with Rivkin is a practical first step. Get in touch with us to learn more!
