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What Is An Sma Agreement

The financial scandals and the market crash in 2008 served as a catalyst for hedge fund investors to move to SMEs. [4] As such, the ADM is evolving to accommodate the expected demand of investors in such structures. The single managed account is an example of improving the structure of the ADM, as it links multiple managers and strategies to a single investor-controlled account. The configuration of the managed single account allows any mix of managers selected by the investor to be more effective in terms of capital and operation than the same mix would have been structured within an ADM or fund structure. 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).