SMAs Weren’t for Us – Here’s Why

OPINION

Managed Portfolios chief executive, Leith Thomas, discusses the evolution of managed accounts and the reasons his firm opted to chart its own course.

When I entered the financial advice industry in the mid-2000s, managed funds sat at the heart of most advice practices. Platform BDMs were abundant, pitching the same menus. And for a while, it worked.

But as the industry evolved, so did the expectations. Separately Managed Accounts (SMAs) arrived, pitched as the solution to the shortcomings of managed funds. More transparent. More tax-aware. Operationally cleaner.

When we were advisers, we looked at them. The appeal was obvious. Clients could see what they owned. There were no embedded capital gains. On paper, they solved a lot. But when we dug deeper, we saw that some core features hadn’t changed. The same pooled custodial ownership model. Same centralised, standardised investment management. Same limited tax control. Little room for adviser input.

And most of all, no real differentiation for advisers or ownership of investment IP. For a firm like ours, that wasn’t appealing.

How The Industry Got Here

In the late 1990s and early 2000s, master trusts and wrap platforms became the go-to structure for advisers. These platforms allowed firms to generate ongoing fees on advice, achieve scale by outsourcing investment management, within a bundled reporting solution.

Clients got simplicity. Advisers got efficiency. But they gave up visibility and large elements of control.

• Assets were held by custodians, not clients.
• Cash was swept through the platform, not discrete client-owned CMAs.
• Fund managers controlled the investment IP, not the adviser.
• Clients held units in pooled trusts, not direct assets.
• Tax outcomes were shared, not personalised. Unrealised capital gains were baked into unit prices. New investors unknowingly bought into tax positions created by others. Customisation didn’t exist.

The SMA Shift

By the 2010s, SMAs gained traction. Platforms got slicker. Transparency improved. Clients could see their underlying holdings and beneficially owned the securities, at least on the platform’s ledger.

That was real progress.

But operationally, little changed. Fund managers ran model portfolios. Platforms executed trades. Clients were still treated as a single block, with little regard for price, timing, or tax specifics.

Example:

• If a dividend had just been paid and a client’s share was sold before the 45-day rule, franking credits were lost.
• A new client buying in just before a rebalance might purchase stocks that were about to be sold.
• Clients who hadn’t held the shares for 12 months were being hit with full CGT.

What Didn’t Sit Right

The more we looked, the more gaps we found:

• No differentiation: Using the same SMA as other adviser didn’t align with our value proposition. Our clients valued active input and tailored communication.
• Custodial legal title: All assets were held under one or a handful of HINs, pooled across tens of thousands of investors.
• No client context: Portfolio managers didn’t know the individual or their tax position.
• No adviser-owned IP: We would be distributing someone else’s product.

And perhaps most critically, the SMA structure risked cutting out the adviser entirely. Platforms and managers were already shifting to direct-to-client offerings. We didn’t want to build a business just to be disintermediated.

We Took a Different Path

Instead of SMAs, we built our own structure—non-pooled IMAs under an MDA framework.

It gave us:

• Exclusive model portfolios, tailored to our firm, not shared with competitors.
• Legal ownership for clients via individual or non-pooled HINs.
• Adviser-led portfolio design and review but with professional asset manager involvement.
• Individual tax management, not model-based default events.
• Flexibility to delay trades when the timing wasn’t right for a particular client.
• Consolidated reporting across listed and unlisted client-directed assets such as property and collectibles.

This structure gave us control, clarity, and credibility. Clients recognised the difference. Our advisers had something real to stand behind. We weren’t perfect. But we had control, and we weren’t easy to replace.

In an industry where so much marketing paints SMAs as the ultimate solution, it’s worth pointing out that viable alternatives exist.