Displaying items by tag: smas

BlackRock (BLK) has unveiled plans to acquire SpiderRock, a prominent provider of technological solutions tailored for financial institutions. This acquisition is set to bolster BlackRock's Aladdin platform, a key player in the world of separately managed accounts (SMAs). 

By integrating SpiderRock's state-of-the-art technology into Aladdin, BlackRock aims to enhance its SMA capabilities, particularly in risk management and trading strategies. According to Cerulli Associates, SMAs are projected to see their assets under management surge to $4 trillion by 2026 from $2.7 trillion, driven primarily by heightened client demand for personalized portfolios offering tax advantages. This strategic move underscores BlackRock's commitment to leveraging advanced analytics within the management sector, enabling clients to optimize operations and mitigate risks more effectively. 

Through this acquisition, BlackRock is poised to pioneer innovative SMA solutions, driving efficiency and productivity across operations and meeting the demand for tax optimization. This development signals a significant step forward in BlackRock's journey toward becoming a leader in SMA, offering tailored solutions to address the evolving needs of investors and wealth managers worldwide.

Finsum: SMAs are fighting atop the industry with model portfolios to be the customized solution. 

A recent survey of financial advisors showed that separately managed accounts (SMAs) are seeing more traction in comparison to model portfolios. Only 22% of advisors plan to increase reliance on model portfolios, a 5% drop from the previous year. In contrast, allocations to SMAs are forecast to reach 26% in 2025 from 18% currently. The trend is more pronounced among advisors serving high net-worth clients who see allocations reaching 31% in 2025 from 23% now.

Some of the reasons cited by advisors in the survey for less interest in model portfolios were higher fees, underperformance, a need for customization, and more investment options. The survey is an indication that model portfolio uptake and growth have stalled as only 29% of advisors using model portfolios report increasing use over the past year. 

The survey was conducted by Cogent Syndicated in October and November of last year. The firm surveyed 403 registered financial advisors with an active book of at least $5 million. The report suggests that model portfolio providers are losing ground as many advisors and clients are gravitating towards direct indexing and SMAs due to their customization and tax optimization, while model portfolios fall short in these regards despite offering other advantages for advisors and clients. 

Finsum: A survey of financial advisors showed that model portfolio adoption has stalled. Here are why advisors are gravitating towards SMAs instead.

Cerulli Associates is forecasting that total assets under management in separately managed accounts (SMAs) will exceed $2 trillion in assets this year. 2023 saw asset growth of 12%, and the firm sees a 15% increase this year. It identifies growth in standalone SMAs in addition to unified managed accounts (UMAs) as key drivers of this trend.   

According to Scott Smith, the director of advice relationships at Cerulli, SMAs allow for more customization of portfolios to achieve specific aims such as tax management or value-aligned investing. He also acknowledges that technology has made SMAs accessible and practical for a much wider swathe of the investing universe. 

Previously, an SMA would be too complicated and costly due to tax and regulatory requirements to make sense for smaller accounts. A decade ago, SMAs were only available for clients with millions to invest. Now, they are available to clients with minimums of $100,000 in some cases. 

The growth of these accounts comes at the expense of traditional brokerages. A key difference is that advisors who use SMAs receive compensation from clients’ portfolio values rather than trading commissions which can create bad incentives. 

Finsum: Separately managed accounts are forecast to exceed $2 trillion in client assets this year. These are typically fee-based and allow for more personalization than investing through a brokerage where revenue is generated through trading commissions.

Separately Managed Accounts (SMAs) are widening their niche in the investment landscape, doubling assets under management to nearly $2 trillion in the past five years (according to Cerulli Associates). This rapid growth stems from their distinctive advantages over traditional options like mutual funds. SMAs offer direct ownership of underlying securities, personalized portfolio construction, and professional oversight, all within a flexible framework that enables personalized tax efficiency.

And they are projected to continue to grow, reaching $3 trillion in the next few years. In a recent Wall Street Journal article, Scott Smith, director of advice relationships at Cerulli, explains why SMAs are growing. “They are no longer just for high-net-worth individuals. As more baby boomers retire and have to move money from their 401(k) plans, SMAs have become an attractive option.”

While this tailored approach resonates with certain investors, particularly retiring baby boomers and those seeking strategic tax management, SMAs are not a universal solution. Consulting a financial advisor remains crucial to assess individual needs and weigh advantages against potential drawbacks. For instance, while the ability to harvest specific tax losses can be invaluable, it may hold little weight for investors with limited capital gains.

Finsum: Separately Managed Accounts doubled assets under management in the past five years and are projected to continue their steady growth.

Separately managed accounts (SMAs) have been utilized for decades to effectively manage client assets. Benefits include transparency, flexibility, control over costs, and choice. They can be optimized for various purposes including taxes, income, cash flow, etc. They also allow for more customization than ETFs or mutual funds. 

They are particularly popular for fixed income purposes and have seen impressive growth in recent years. For instance, municipal fixed-income assets went from $100 billion in 2008 to $718 billion in July 2023. In part, this is due to SMAs becoming more accessible to a wider universe of investors as improved technology has led to lower costs and lower minimum amounts to invest. 

ETF’s presence in the municipal bond market is also growing fast. There are now 81 funds and $108 billion in assets, a 50% increase from 2021 but less than 3% of the total muni market. Many active mutual funds are being converted into active ETFs. One advantage is greater liquidity which allows investors to quickly gain exposure as a placeholder while they accumulate individual securities.

Mutual fund flows can be affected by market sentiment, leading to selling during periods of redemption, which is not an issue with SMAs. Due to the growth of SMAs and ETFs, muni mutual funds have seen net outflows over the last couple of years. Another factor is high rates making short-term securities or bank deposits more attractive relative to longer-duration assets. 

Finsum: There are multiple ways to invest in municipal bonds. One of the fastest-growing methods is through separately managed accounts which offer some specific benefits relative to ETFs or mutual funds.