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What is a separately managed account and how does it work?

A separately managed account can help you focus on an objective you may want to outsource in the overall management of your investments.

Key takeaways

  • Separately managed accounts (SMAs) are a potentially powerful way to outsource part of your investment portfolio to professional managers.
  • These accounts are often favored by investors for the control, transparency, and tax efficiency they can offer.
  • With an SMA, you own the underlying securities in your account. With a mutual fund, you own shares of the fund, not the underlying investments. This key difference is foundational to SMAs.

Maintaining an investment portfolio is a lot like maintaining a house. It comes with a multitude of decisions and tasks—both large and small—you must tackle in order to protect and grow the value of your investment.

Some of these tasks you might feel fully equipped to handle yourself, and you might even enjoy. Some you might be willing to learn how to DIY. But others you might feel are too time-consuming or daunting to attempt, and so are better left to carefully chosen professionals. (Roofing, anyone?)

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Homeownership comes with a lifelong learning curve, and so does investing. As you sharpen your sense of which tasks you like to handle and which you want to outsource, consider separately managed accounts (SMAs) as a potentially powerful way to outsource part of your investment portfolio to professional managers. These accounts are often favored by savvy investors for the control, transparency, and tax efficiency they can offer.

Read more to learn about whether they might be right for you.

What is a separately managed account?

An SMA is a professionally managed portfolio of individual investments designed to meet a specific objective—one component of your overall investment portfolio that you might prefer to outsource while you focus on the bigger picture and the investment activities you're most comfortable with or even enjoy doing.

SMAs sound like mutual funds, but they are not pooled investments. With an SMA, you own the underlying securities in your account. With a mutual fund, you own shares of the fund, not the underlying investments. This key difference is foundational to SMAs.

How does an SMA work?

When you invest in a separately managed account, you start with a portfolio designed by a professional manager for a specific investment objective based on a strategy you choose. As you fine-tune that portfolio, it becomes unique to you.

What are the advantages of an SMA?

Because you own the underlying securities in an SMA, you have complete transparency and the ability to personalize your account.

  • You can see exactly what is in your portfolio at any time and see any trades that are made.
  • You can personalize your portfolio to avoid a limited number of individual companies or even entire industries.
  • SMAs may also offer tax management that seeks to enhance returns in taxable accounts. Managers have discretion over when they choose to realize capital gains and can identify and sell a particular stock that goes down in value to take advantage of the potential tax savings. Learn more about how tax-smart investing works.

What does an SMA cost?

Professional management comes with a cost. Typically, a separately managed account will have an annual advisory fee in addition to any underlying expenses associated with the mutual funds or exchange traded funds (ETFs) held within the account.

Fidelity SMAs charge a gross advisory fee that ranges from 0.2% to 0.7%, and varies based on strategy and total assets invested.1 Fidelity also credits back any fees associated with mutual funds or ETFs held in the account.

Is an SMA right for you?

SMAs were originally designed for high-net-worth individuals and institutional investors, but investment minimums have come way down in recent years, putting them within reach of more investors.

Today, investors with Fidelity can consider either a traditional separately managed account, which pairs you with an advisor to develop your strategy, or an online-only option.

It may be worth exploring these options if you're an investor who wants:

  • to control your overall asset allocation but doesn't want to pick individual securities.
  • to fill a gap in your own investment expertise.
  • more transparency, control, and tax efficiency than mutual funds may provide.

Ready to take the next step?

Investors who want more personalized guidance can consider Fidelity's separately managed accounts, which are available to those who already work with an advisor or prefer to work with one. Account investment minimums start at $100,000 or $350,000, depending on the strategy.2 Those who prefer an online-only approach can explore Fidelity's digital alternative, which requires a minimum investment amount of only $5,000 and doesn't entail working with an advisor.3

Or, if you're still not sure if a separately managed account is right for you, learn more about the ways we can work together to help you on your investing journey.

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1. The advisory fee does not cover charges resulting from trades effected with or through broker-dealers other than affiliates of Fidelity Investments, mark-ups or mark-downs by broker-dealers, transfer taxes, exchange fees, regulatory fees, odd-lot differentials, handling charges, electronic fund and wire transfer fees, or any other charges imposed by law or otherwise applicable to your account. You will also incur underlying expenses associated with the investment vehicles selected. 2. Fidelity® Strategic Disciplines (FSD) clients must generally qualify for support from a dedicated Fidelity advisor, which is based on a variety of factors (for example, a client with at least $500,000 invested in an eligible Fidelity account(s) would typically qualify). Account investment minimum is $100,000 for an FSD equity strategy, and $350,000 for an FSD bond strategy. 3. There is no minimum required to open a Fidelity Managed FidFolios® account; however, in order for us to invest your money according to the investment strategy you've chosen, your account balance must be at least $5,000. Until you reach that balance, any securities used to fund your account will be unmanaged, and any cash deposited into your account will be invested in your core money market fund. Your account may be closed if that balance is not reached.

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.

Diversification and asset allocation do not ensure a profit or guarantee against loss.

Fidelity does not provide legal or tax advice, and the information provided is general in nature and should not be considered legal or tax advice. Consult an attorney, tax professional, or other advisor regarding your specific legal or tax situation.

Tax-smart (i.e., tax-sensitive) investing techniques (including tax-loss harvesting) are applied in managing certain taxable accounts on a limited basis, at the discretion of the portfolio manager primarily with respect to determining when assets in a client's account should be bought or sold. As the discretionary portfolio manager, Strategic Advisers LLC ("Strategic Advisers") may elect to sell assets in an account at any time. A client may have a gain or loss when assets are sold. There are no guarantees as to the effectiveness of the tax-smart investing techniques applied in serving to reduce or minimize a client's overall tax liabilities, or as to the tax results that may be generated by a given transaction. Strategic Advisers does not currently invest in tax-deferred products, such as variable insurance products, or in tax-managed funds, but may do so in the future if it deems such to be appropriate for a client. Strategic Advisers does not actively manage for alternative minimum taxes; state or local taxes; foreign taxes on non-U.S. investments; federal tax rules applicable to entities; or estate, gift, or generation-skipping transfer taxes. Strategic Advisers relies on information provided by clients in an effort to provide tax-sensitive investment management, and does not offer tax advice. Except where Fidelity Personal Trust Company (FPTC) is serving as trustee, clients are responsible for all tax liabilities arising from transactions in their accounts, for the adequacy and accuracy of any positions taken on tax returns, for the actual filing of tax returns, and for the remittance of tax payments to taxing authorities.​

Fidelity Managed FidFolios® provides discretionary investment management for a fee. <Fidelity Managed FidFolios® includes> <the U.S. Total Market Index Strategy>, <the U.S. Low Volatility Index Strategy>, <the Environmental Focus Strategy>, <the Dividend Income Strategy>, <the U.S. Large Cap Strategy>, <the U.S. Large Cap Index Strategy>, <the International Strategy>, and <the International Index Strategy>. Advisory services offered by Fidelity Personal and Workplace Advisors LLC (FPWA), a registered investment adviser. Brokerage services provided by Fidelity Brokerage Services LLC (FBS), and custodial and related services provided by National Financial Services LLC (NFS), each a member NYSE and SIPC. FPWA, FBS, and NFS are Fidelity Investments companies.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

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