Guest Contributor: Philip Lawton, Stone House Consulting LLC
What does the phrase separately managed account (SMA) mean to you? If you work for an investment management firm with institutional clients, you probably think of their individual, stand-alone portfolios. However, if your firm (or your part of the firm) offers wrap-fee products, you’re more likely to think of sub-advised portfolios. The latter usage is recognized—not, to be sure, endorsed, but nonetheless employed—in the 2010 edition of the Global Investment Performance Standards (GIPS®), where an entire chapter is devoted to Wrap Fee/Separately Managed Account (SMA) Portfolios. But our work lives, not to mention the GIPS standards, are complicated enough without using the same term to refer to two very different products in the expectation that contextual clues will guide others to the one we have in mind. It’s admittedly a small thing, but ambiguity is generally undesirable, and we have all too few opportunities to clarify and simplify at the same time. Let’s agree to stop saying separately managed accounts when we’re talking about wrap-fee accounts. And, while we’re at it, let’s drop the acronym entirely.