Q: What is a Separately Managed Account (SMA) and how do they work?

A separately managed account (SMA) is a portfolio of individual securities managed on the client’s behalf by a professional asset management firm, such as Nucleus Wealth.

Separately managed accounts offer the investor the benefits of direct security ownership. This means that unlike in a unit trust, dividends, distributions and franking credits are confined to the client’s account, and applied to the client’s income tax statement. The client, therefore, gets many of the benefits of a personally managed investment account, along with all the benefits of a professionally managed investment. 

Separately managed accounts have been around for some time, and have grown in popularity in the last 5 years.

At Nucleus Wealth, we use Separately Managed Accounts to deliver the following benefits to our clients

  • Transparency: You can see what you hold at any time, understand how and why your portfolio manager is positioning your account, and generate your own customised performance and accounting reports at any time.
  • Tax Efficiency:  The tax benefits of the holdings (such as franking credits on dividends, or the netting of capital gains/losses at tax time), can be used directly by the account holder at tax time to offset their own tax liabilities. This is different to the pooled trust structure many investments use which don’t allow for the pass through of taxes.
  • Lower Brokerage:  Your Nucleus Wealth Separately Managed Account typically incurs $1~2 brokerage fees for Australian listed holdings and typically $3~4 brokerage fees for internationally listed holdings, as a result of consolidating transactions (spreading the brokerage costs across a number of investors).  This is typically a fraction of the transaction costs of an online broker.
  • Customised Portfolios: The Separately Managed Account structure is your own portfolio structure, so it allows you to tailor your portfolio in a number of different ways, including according to your risk and ethical preferences. You can use over 30 different ethical screens to filter out investments you wish to exclude from your portfolio. And the ‘Limited Advice’ option in our onboarding system can help you determine which mix of our portfolios is most suited to your risk and income needs.
  • Targeted Diversification: Low-cost way to diversify your portfolio, and avoid doubling up on exposure. For example, if you already have exposure to the property market in your portfolio of assets, you may prefer not to have anymore. You can use one of our screens to exclude any additional investments in the Australian property market in your Nucleus Wealth account.
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