Mark discusses the four main reasons you may want to use an SMA:
- Taxes –Separately Managed Accounts (SMAs) Can Lower Taxes
- Taking Your Own Tilt / Smart Beta
- ESG & SRI
- Concentration Diversification & Regulation
Separately Managed Accounts (SMAs) Can Lower Taxes.
Tax losses can be harvested at the individual stock level; this allows more opportunity to harvest losses without affecting return potential. Finding similar securities to reinvest in is easier with 500+ securities than with 20 or using ETFs or mutual funds. Some software can also scan for opportunities daily, not weekly or monthly; this adds even more opportunities.
Gifting appreciated securities is also easier and more effective at the individual stock level. Gifting specific lots of specific securities allows for the maximum tax benefit while still maximizing potential return.
While SMAs can easily replicate a commercial index, they can be even more effective if they are not tied to a retail index. Indexes are restrictive and are not designed around the investor’s goals. Having the flexibility to harvest returns while still being diversified, low-cost, and operating within an investment strategy can produce better tax-adjusted results.
Investment Style / Smart Beta
Depending on the software, investors can also create their investment strategy. In essence, they can almost create their own mutual fund. They can overweight factors like price-to-book while still being diversified.
ESG & SRI
SMAs can also screen for ESG (Environmental Social Governance) and SRI (Social Responsible Investing) factors. This same screening process can be used for investors prohibited from buying specific securities or sectors, like those working for a government agency.
SMAs can be especially powerful for those with concentrated equity positions. SMAs are not only able to screen out exposure to that security or industry, but they can also gradually reduce exposure in a tax-friendly manner.
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For more information on DFA SMAs: https://us.dimensional.com/separately-managed-accounts
For more information on working with Sona: https://www.sonawealthadvisors.com/sma-accounts-direct-indexing-2/
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The Architecture of Wealth Podcast is for educational purposes only. Investment Advisory Services are offered through Sona Financial LLC (DBA Sona Wealth and Sona Wealth Management), a registered investment adviser authorized to do business in states where registered or otherwise exempt from registration. Nothing discussed during this show/episode should be viewed as investment advice. If you have questions pertaining to your specific situation, please consult your own financial professional.
Separately Managed Accounts (SMAs) Can Lower Taxes