The investment technology offering greater flexibility and efficiency

In a world of rapidly improving technology, shouldn’t there be options to make your investment management easier, more efficient and more flexible for you? This question is one of the drivers behind the increasing popularity of separately managed accounts (SMAs), an investment vehicle that has existed for decades but only hit its stride in more recent years.

In the last year, global assets under management in SMAs surpassed $2.4 trillion, while closer to home, MLC Asset Management’s own SMA business hit $3bn.

For the unfamiliar, SMAs are individual investment portfolios managed on your behalf by a professional investment manager and typically include a mix of assets, like direct shares, ETFs and managed funds. Investors have beneficial ownership of the assets in the portfolio, meaning access to benefits like franking credits, dividends and more.

Anthony Golowenko, Portfolio Manager for MLC's multi-manager funds, credits some of the growing popularity of these vehicles or platforms to “institutional investment manager insights being parted on multi-asset class solutions to advisers and ultimately, to their end clients.”

He adds that the flexibility of SMAs is resonating well in the market.

Once the realm of high-net-worth investors, SMAs have become more accessible and affordable to retail investors – but investors and financial advisers alike are still grappling with the ins and outs of using them.

In this episode of The Pitch, Golowenko discusses how SMAs work, what beneficial ownership means in the SMA structure and how investors and financial advisers can use them as part of an overarching investment strategy.

Edited transcript:

In brief, what is a separately managed account and how do investors use them?

I think from a very basic concept of nothing new under the sun or perhaps in Shakespeare terms, ‘things that hath been or hath been done’, so nothing new under the sun.

An SMA is basically a collection of assets, whether they be direct securities or managed funds, it is ultimately a platform solution. None of these building blocks are new. The way they're combined in a contemporary structure, the way they're combined, that makes things really easy, efficient, flexible for advisors. 

Well, that in the essence is what an SMA is, but it's typically a multi-asset solution. Managed funds, direct shares, investments on platform, and ultimately this platform technology enabling the solution to really benefit investors, benefit advisors in their time, and really see a leveraging of size and scale from the investment managers.

What type of assets might you typically invest in when using an SMA?

If we look at the history of SMAs, they evolved from discrete share portfolios about 20 years ago. Over time, they transitioned into individually managed accounts and then into SMAs. The typical investments include direct shares, managed funds, and exchange-traded funds (ETFs). The key factor is that SMAs are an on-platform solution, which typically requires daily pricing. There is a broad range of assets available on platforms filling this market space.

Globally, assets under management for SMAs surpassed $2.4 trillion in 2024. I know your own strategies have reached the $2 billion mark, which is no small feat. What are the main drivers behind the growing popularity of these investment vehicles?

Actually, I’d update that figure - our strategies have now surpassed $3 billion. We’ve seen strong inflows, and I think part of that is due to the equitable and democratized nature of SMAs. In our case, we leverage institutional investment management insights and apply them to a multi-asset class solution that advisors can use for their clients.

SMAs offer flexibility, transparency, and direct communication between investment managers, advisors, and clients. This structure resonates well in the marketplace. While none of these components are entirely new, the way they come together creates a highly flexible and appealing solution.

SMAs are known for their tax efficiency. Can you explain what that actually means?

Of course. First, I should note that our legal team emphasises that all tax-related information is general in nature. Within our MLC program, we offer both premium and value series options. These are designed so that investors can efficiently transition between growth and balanced investments as they progress through their investment journey.

For advisors, especially in volatile markets or periods of uncertainty, SMAs enable a smooth transition across different risk levels. This is possible due to beneficial ownership, which allows for efficient movement within the portfolio. Direct shares, which are well-known among Australian investors, can also be held within SMAs, contributing to tax efficiency and structural benefits.

You mentioned beneficial ownership. Can you explain what that means in the context of equities?

Certainly. Beneficial ownership means that when you hold shares - whether it's BHP, CBA, or Wesfarmers - you own them directly in your name. This allows you to receive dividends and associated franking credits just as you would with individually held shares.

When these shares are held within an SMA, investors still maintain direct ownership, benefiting from greater transparency and control over their investment outcomes. This ownership structure is a key advantage of SMAs, providing flexibility while remaining within a professionally managed portfolio.

What are some key considerations investors should keep in mind before investing in an SMA?

The primary question investors should ask is: What am I trying to achieve? One of my colleagues often says, "What problem are we trying to solve?" At MLC, we bring nearly 40 years of experience in multi-manager, multi-asset investment solutions to our SMA program.

Direct shares play an important role, but they can also be complemented by other investment types. The key is diversity and resilience within a flexible, transparent structure. Many investors choose to work with financial advisers to ensure SMAs align with their broader financial goals.

How can investors work with their financial advisers to incorporate SMAs into their portfolios? Are there particular types of investors who are better suited to this product?

If we look back, discrete share portfolios were common 20 years ago, and individually managed accounts became more prevalent about 10 years ago. The evolution into SMAs has made this investment approach even more accessible.

For advisers, the key is to identify what journey their clients want to be on. SMAs allow for diversified exposure across multiple asset classes, including sub-asset classes. Historically, high-net-worth investors started with individually managed accounts, while SMAs now offer a more accessible solution for a wider range of clients, including those with lower balances or high inflows.

Beyond investing, advisers need to address other aspects of financial planning - regulations, taxation, estate planning, and more. SMAs empower advisers to have these broader discussions, leading to better client outcomes. Ultimately, our goal is to help everyday Australians secure their financial future, and SMAs play a crucial role in that journey.

Invest with intent

For more information on the MLC Managed Account Strategies, please visit here. If you are a financial adviser, please contact your MLC representative here. If you are a direct investor, please speak to your financial adviser.