4. Why use an SMA?
A separately managed account (SMA) allows an investor to hire an investment manager (often through an investment advisor) to manage the portfolio. A BRI manager can screen the companies for values and manage the securities portfolio, seeking good investment results. The investor owns individual stocks and bonds, which can be checked 24/7 online. Large investors usually use SMAs rather than mutual funds. SMAs allow more individualized attention and their costs are usually lower than mutual fund costs. Appreciated securities can be gifted to reduce income taxes. The portfolio can be managed to achieve overall tax objectives, such as by selling to take losses and gains.
Foundation Financial uses SMAs for three additional reasons:
- Cost – the start-up and ongoing operating cost for an SMA is much less than the cost of a mutual fund
- Efficiency – through an alliance with BridgePortfolio, investment management services can be provided efficiently and equally to many investors by using a few asset-allocated model portfolios
- Risk – the investor owns the stocks directly with the securities handled by a well-known custodian; Foundation Financial manages the portfolio for a quarterly fee, but cannot access the securities or cash in the portfolio
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