A separately managed account is a portfolio managed to a specific strategy in which the client owns the underlying securities directly, rather than owning shares of a pooled fund.
The distinction from a fund is whose securities they are. In an SMA the client holds the positions; in a fund the client holds shares of a vehicle that holds the positions.
Tax lots belong to the client, so gains and losses can be managed at the position level and the account is not affected by other investors' activity in a pooled vehicle.
Restrictions become possible. A client who cannot hold a particular security, for employment or other reasons, can have it excluded.
Higher than funds, because the strategy has to be implementable in one account. Historically this put SMAs out of reach for most clients; fractional shares and improved trading technology have lowered the threshold considerably.
A model portfolio implemented in a client's own account is functionally an SMA. The difference is largely about who maintains the strategy and how it is delivered.
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