SMAs 'Poised for Significant Growth': Study

November 14, 2005 ( - Separately managed accounts (SMAs) are already the focus of many advisors' practices and seem poised for significant growth, even though few investors are taking advantage of important product benefits like tax optimization and customization.

Those are among the findings of a nationwide survey of financial advisors and investors recently conducted by Citigroup Asset Management, a news release said.

“That said, we think SMAs’ greatest growth lies ahead, as the product has features and applications uniquely suited to today’s more engaged and empowered class of investors,” said Peter Cieszko, head of US Retail & High Net Worth at Citigroup Asset Management. “What mutual funds were to the ’90s, SMAs may be to this decade, and beyond.” 

Forty-one percent of advisor-producers surveyed said that SMAs make up half or more of their sales. Seventy-three percent of producers – and 33% of non-producers – agree that more of their gross sales will come from SMAs than from mutual funds within five years.

Seven of 10 producers see their SMA business growing at least a medium amount in the future.  More than half (57%) of non-producers are likely to sell SMAs in the future.

Investors have strong interest as well. More than half of SMA owners say they are likely to invest more in SMAs over the next year.  Even among non-owners, 17% say they are at least somewhat likely to invest in SMAs over the next year.

While popular, it’s also clear that many SMA investors aren’t making use of some key benefits.  Six in 10 producers say that fewer than 20% of their SMA clients with taxable accounts have had their SMA manager take a gain or loss in the last three years.  Nearly six of 10 owners say they’ve never done this, yet 62% say this is a very important SMA advantage.

The picture is virtually the same for account customization.  Most producers say that fewer than 20% of their SMA clients have ever customized their portfolios, and 23% say none of their clients have ever done this.  Nearly half of owners say they’ve never customized their portfolio.

There are benefits that are recognized, though.  In addition to manager access, more than six of 10 owners say that “visibility of fees,” “better communication and performance reporting,” and “visibility of holdings” are all very important.

Though SMA investors place the greatest value on communications, advisors tend to focus elsewhere. When it comes to deciding which provider and product to recommend, just 12% of advisor-producers feel that “client access to the manager” is extremely important. By comparison, 50% of advisors say “historical manager performance” is extremely important and 48% cite operational support.

Most SMA producers as well as owners agree that SMA owners tend to take a long-term view, are more experienced and knowledgeable, and are low risk takers.  Producers also generally agree that SMA owners are more disciplined and chase performance less than mutual fund owners.

While many advisors and investors are knowledgeable about SMAs, there is considerable room for improvement.  Reflecting the education and awareness challenge, Citigroup Asset Management has developed a special program for advisors: “At the Forefront: SMAs.”  The program is designed to deliver information, education and tools to advisors for more effective marketing and support of separately managed accounts, the news release said.   It includes broker and client approved presentations and a white paper on the survey findings.

The telephone survey examined views and uses of SMAs among 400 financial advisors and 505 individual investors nationwide. The advisor and investor polls were conducted by the research firm of Mathew Greenwald & Associates. The advisor poll was conducted between June 13 and July 5, 2005 and the investor poll was conducted between July 6 and August 16, 2005

More information is at

On June 24th, Citigroup and Legg Mason announced they had agreed for Citigroup will sell substantially all of its Asset Management business in exchange for Legg Mason’s broker/dealer business and other considerations (See  Citigroup, Legg Mason in $3.7B Asset Swap ).