SMAS has gained popularity with consultants and clients because it provides investors with a convenient opportunity to hold the underlying securities of a larger investment portfolio, unlike an investment fund or ETF in which the investor simply holds an interest in a higher fund. These types of managed accounts were designed to provide clients with challenging investment opportunities that in the past were only available to larger institutions. ALMs can offer more freedom of choice, tax and operational efficiency, and more personalized investment solutions. Some distinctive features should be considered in deciding whether SMEs with a dual or single contract are the best choice for RIAs and their clients to access these investments. At a high level, size is generally important: does an RIA have enough assets to assign it to a particular manager that the third party is willing to negotiate directly with the RIA? And would the company`s clients, with each investment strategy, meet the minimums of individual accounts? In the past, if the answer is “yes,” most consultants have chosen to access the manager through a dual-contract ADM, where the client enters into an investment advisory agreement with the RIA and the investment manager. This allows the RIA to negotiate its own costs with the manager and to have a direct relationship in which it can inform the harvest manager of the tax losses and the date of trading and liquidations. Where the RIA can negotiate a reasonable royalty with the investment manager, this additional level of oversight is often preferred. If the RIA assigns only a small amount of assets to a specific manager or strategy, or if the underlying clients are unable to complete individual account minimums, SMAS/UMA with a single contract may be the best way to access the portfolio. In this case, the client signs a single investment advisory agreement with RIA, which invests clients` assets in accounts managed by an SMA platform provider (Envestnet, SEI, AssetMark, Brinker Capital, FTJ FundChoice, etc.). The SMA platform provider, which has a direct relationship with external managers, performs all tax losses, transactions and liquidations. The RIA also relies on the collective purchasing power of the SMA platform provider with the manager.

The platform provider will have negotiated the fee directly with the manager, and the RIA will be able, through the vendor-guaranteed scale, to access strategies for agreed management fees. In addition to the reduced management fees, IRAs must also take into account the platform fee charged by the supplier. For smaller asset allocations, these two combined costs should be a cost-effective option. In the case of larger asset allocations, it may be useful to do some research before determining whether MMS with one or two contracts offer more competitive prices (see image below). Creating separately managed accounts in the RIA industry is a process that is manageable through specific resources with administrators, platform providers and consultants available to consultants seeking additional advice. Consultants should spend sufficient time analyzing whether dual-contract SMEs or SMEs with a single contract are best suited to their business and ultimately best suited to their clients. Larger RIAs, which alone have sufficient bargaining power, can benefit the most from dual-contract MMAs, provided they are ordered to manage the necessary supervision. ADMS with a single contract offer an attractive alternative to those who are not at scale or who want to record some of the operational efficiency of SMA platform providers.