Separately Managed Accounts are Poised to Gain Market Share in 2025
By Zephyr Market Strategist, Ryan Nauman
By Ryan Nauman, Zephyr Market Strategist
While mutual funds and ETFs garner more headlines and attention from financial advisors and their clients due to their accessibility. Separately managed accounts (SMA) have gained in popularity as wealth managers have become more aware of their benefits while accessibility has increased. In addition to increased awareness and accessibility, assets under management (AUM) within SMAs are poised for growth as the inherent benefits of SMAs address the evolving demands of investors.
In 2024, total assets reported to Zephyr’s PSN SMA database grew by 8%, while assets within SMAs with a retail wrap increased 22%. The asset growth isn’t expected to stagnate either as Cerulli Associates expect that AUM within SMAs will grow to $3.6 trillion by 2027 from $2.4 trillion in 2024.
These growth trends are expected to continue in 2025, as calls for increased personalization, customization, and transparency from investors get louder The following benefits of SMAs address these investor demands more effectively than any other investment vehicle.Answering the Demand for Customized Investments
Because the investor directly owns the underlying securities, SMAs allow investors the ability to customize the holdings within the investment vehicle. Due to the customization abilities, advisors can ensure a client’s values, goals and risk tolerance are met within a singular investment vehicle and gain the ability to create the best performing SMA for their clients.
Furthermore, the ability to customize the underlying holdings offers greater flexibility compared to investing in a mutual fund or ETF. SMAs provide investors with more flexibility in what they hold in the single vehicle, in fact, investors can invest in alternatives like real estate, managed futures, or private credit within a single SMA.
Improve Client Experience Through Transparency
By directly owning the underlying investments whether it is a stock, bond or alternative, SMAs offer much more transparency for investors compared to mutual funds and ETFs. In fact, you always know exactly what you are holding within an SMA.
The enhanced transparency, ability to customize the holdings, and the flexibility SMAs provide gives investors a greater sense of control which is very appealing to younger generations.
Enhanced Investment Strategies
Furthermore, tax planning and reducing one’s tax obligations are becoming increasingly important in today’s financial planning landscape. SMA’s provide investors with additional tax planning strategies.
Increase Practice Efficiencies
Not only can SMAs enhance the client experience, but they can also improve practice efficiencies for wealth managers. Using a third-party asset manager or platform to take over your investment management duties in the form of an SMA, removes a time and regulatory burden from your practice, which most importantly allows you to spend your valuable time meeting with clients, resulting in stronger relationships.
The increased awareness, reduced investment minimums, and benefits that directly address investor demands will result in SMAs gaining market share in 2025.
Ryan Nauman is the Market Strategist at Zephyr, which helps investment professionals make more informed investment decisions on behalf of their clients.
