Marketing & Client Acquisition
For advisor use only. Not for use with investors.
It comes as no surprise that separately managed accounts (SMAs) are gaining traction among high-net-worth clients. Controllable, potentially customizable, and with the ability to manage tax impacts, there’s a lot to like.
There’s also a lot to like from an advisor’s perspective.
“SMAs provide advisors with a powerful tool to energize their businesses,” says Paul Cieslik, advisor practice management consultant at Capitals Express Investments. Cieslik points to the Pathways to Growth 2023 Advisor Benchmark Study to underline his point. According to the study, which surveyed more than 1,500 U.S. financial advisors, the highest growth practices were much more likely to offer value-added services in tax planning and strategy as well as guidance on charitable giving — areas well-suited for SMAs.
“Recommending SMAs demonstrates an understanding and awareness of your client’s needs at a much deeper level. This can help advisors in three key business building areas: branding, differentiation and prospecting,” says Cieslik.
Why offer SMAs? Can deliver on your value proposition Recommending SMAs underlines your value as an advisor by helping clients with more complex, wealth-centred needs. Differentiates you from other advisors SMAs can help you build a distinctive brand image that sets you apart from other advisors as clients have come to view retirement and financial planning as table stakes. Aids client targeting and acquisition SMAs and their specific attributes often appeal to high-net-worth clients, which can help you in your client targeting and prospecting. |
When introducing SMAs to clients for the first time, the most successful advisors follow a well-scripted, predetermined path that often starts with a comparison between mutual funds and SMAs, according to Capitals Express Investments wealth management consultant Mike Stern.
“Your clients probably have a good idea what a mutual fund is, so it makes sense to use that as a starting point,” says Stern, who has helped advisors and their teams with their SMAs communications process for years.
The following table lists the features of mutual funds and SMAs, along with phrasing from Stern to consider when positioning the latter to clients.
Features |
Mutual funds |
SMAs |
Phrases to consider for SMA positioning |
|---|---|---|---|
Ownership |
Investor owns units in a pool of securities commingled with assets of other investors |
Investor owns individual securities |
“An SMA is a private portfolio exclusive to you” |
Portfolio holdings |
Identical for all investors |
Generally, more concentrated with potential for customization1 |
“You can fine tune holdings to your liking” |
Holdings disclosure |
Quarterly, semi-annually and annually |
Full transparency — transactions are seen as they occur2 |
“You’ll always know where you stand with 100% visibility into each security” |
Tax basis |
May include embedded capital gains from periods before units are bought |
Begins when investor purchases the individual securities |
“Tax-controllable from day one” |
Tax management |
Under control of the fund portfolio managers |
Financial advisor and/or investor may choose to tax-loss harvest at the individual security level |
“Opportunities to manage and minimize tax impacts” |
Fees |
Management expense ratio (MER) varies by asset class; automatically deducted |
Typically investors pay an all-in or “wrap” fee that can be tailored |
“SMAs are cost effective and we can tailor your costs” |
1 All model portfolios are managed at the discretion of the program sponsor.
2 At the broker/dealer level.
Tailoring the conversation
Once you have identified the differences between mutual funds and SMAs, the next step according to Stern is tailoring your approach to target a specific client need: tax efficiency, customization and/or visibility. The following 3 case studies provide you with a roadmap, questions and key words with which to engage clients, depending on their needs.
Case study #1
Tax efficiency: Managing tax impacts
The client |
Jennifer M. has a sizable stock portfolio and worries that her income and capital gains taxes could significantly diminish her investment upside. |
|---|---|
A potential solution |
By shifting to an SMA, Jennifer can sell poorer performing stocks to reduce her taxes now or offset them in the future. |
Consider asking |
Are tax considerations keeping you from making investment changes you would otherwise make? |
Mention |
SMAs offer you greater control, giving you more opportunities to manage tax impacts. You can, for instance, sell specific securities, harvesting gains and losses for immediate or future benefit. SMAs enable you to donate specific, appreciated holdings for gifting and charitable giving, benefiting both you and the recipient. |
Key words |
Controllable, private portfolio, tax management, tax harvesting, gifting and charitable giving |
Case study #2
Customization: Fine tune holdings
The client |
Sarah G. has high concentrations of appreciated Canadian bank stocks after working in the executive suite at three deposit-taking institutions during her career. She’s hoping to avoid investing any more in these banks and would rather invest in select companies aligned to her values. |
A potential solution |
By working with her financial advisor with an SMA, Sarah can customize her holdings to avoid certain types of companies. This can be particularly useful for a wide number of clients who have worked in one industry (banking, high-tech, pharmaceuticals) throughout their careers or are interested in ethical and/or sustainable investing. |
Consider asking |
Do you have any specific investment areas you’d like to avoid or focus on? |
Mention |
Because SMAs can be potentially personalized, they allow you to avoid certain companies and industries, allowing for more targeted holdings and more effective investment allocations. You can, for instance, choose to exclude any stock you may already own or those related to such industries as tobacco, alcohol and weapons. Alternatively, there may be companies, industries or sectors that you’d like to have increased exposure to because they have an environmental and/or social impact you believe in. |
Key words |
Controllable, private portfolio, customization, fine tuning |
Case study #3
Transparency: Visibility in assets
The client |
Sam H. is actively engaged in his investing strategy, and wants to have visibility into exactly what he owns and how it’s performing. |
A potential solution |
Using an SMA, Sam can see information on the specific stocks he owns and monitor any changes, while still getting the potential benefits of professional management and diversification. |
Consider asking |
Would you prefer greater visibility into your holdings? |
Mention |
Highlight that SMAs allow clients to see what they’re holding. SMAs offer you the ability to input on what is and isn’t held, view daily holdings and any changes as they happen. |
Key words |
Controllable, private portfolio, visibility, security ownership, lower potential fees |
“As powerful as SMAs are for advisors and their clients, it’s important to ensure that the SMA manager you select is the best one for your client’s needs,” says Cieslik.
Factors to consider when selecting an SMA manager, are investment process, overall track record and the type of portfolio you’re considering for your client, Cieslik adds.
“At the end of the day, it’s virtually the same due diligence process an advisor would go through when selecting any investment manager — with one key difference,” says Cieslik.
“Your practice may grow faster.”
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