Chapter 12
Managed Accounts
It is safe to say that in 1973, when E.F. Hutton client Hilda Peck opened the first separately managed account (SMA),1 no one could have predicted the extraordinary popularity and growth that SMAs would achieve over the next 35 years. Indeed, the structure and tax planning benefits of SMAs have contributed to an industry that today controls approximately $1,332.3 ($billions) in assets2 and boasts an ever-expanding array of products.
The acknowledged founder of the SMA industry, Jim Lockwood, originally conceived the SMA concept when he was a retail stockbroker who was consulting in the institutional defined benefit pension market, introducing money managers to pension funds and, in return, receiving directed trades from the managers of these funds.3 May Day 1975, when negotiated commission rates were introduced, spurred Lockwood on and he created the first wrap fee program, with “a professionally managed portfolio, run at an all-inclusive 3% fee. By negotiating the commission rates to zero cents per share, and charging an advisory fee, the broker's interests became aligned with the clients.”4
As a general description, SMA programs have evolved to be defined as “programs by which asset managers manage investors’ assets in discretionary separate accounts. A bundled asset-based fee (often 2.5% to 3% before breakpoints and discounts from negotiation) covers money management, trading and custody.”5 Put differently, instead of a broker managing a client's ...
