Having Separate Account Managers available on the Illuminations Platform means Advisors, as the General Manager of the Investment Team, now have access to third- party managers who specialize in building portfolios of individual securities.
Referred to as Separately Managed Accounts , i.e. SMA’s, these portfolios are built using general securities vs. mutual funds or Exchange Traded Funds used in the Third- Party Strategist Portfolios available today.
SMA’s can be used in one of two ways:
- An individual sleeve in a UMA – One SMA Portfolio of general securities, or
- Multiple sleeves in a UMA – Combining multiple SMA portfolios in one account OR combining an SMA portfolio with a Third-Party Strategist Mutual Fund or ETF portfolio in one account.
“Using an SMA portfolio for the equities allocation of the account alongside a low-cost bond ETF portfolio is one of the most exciting applications of SMA’s on the ESI Illuminations Platform. By using the SMA portfolio for the equities portion of the account, advisors can provide their clients with enhanced benefits, (e.g. client-level customization, tax efficiency, expense management, and increased ownership transparency) while incorporating one of the platform’s ETF bond portfolios for the fixed income exposure affords single digit manager fees with minimal expense ratios, and the potential for same day bond liquidity. This premier solution is available for accounts as low as $150,000.” – Dan Randall, VP of Product at ESI
Another exciting feature available for SMA accounts is the ability to add an overlay to the management of the general securities portfolios such as Tax Overlay and/or Impact Overlay. These overlay services allow for customized management of accounts and allows clients individual tax situation or individual socially responsible interests to be adhered to.
“Now that we have portfolios of individual securities available on the ESI Illuminations Platform, we can market to the high net worth a professional management solution with the ability to customize it to the clients specific and individual needs, which brings the ESI Illuminations platform to the next level.” – Sandy Colvin, AVP Advisory Services and Partner Experience Group
The Unified Managed Account Structure allows for any combination of portfolios advisors and their clients are interested in as a solution to their investment needs.
Separately Managed Accounts through Illuminations
Frequently Asked Questions
What are separately managed accounts?
Separately managed accounts, or SMAs, are portfolios of individual securities managed by a third-party asset manager. ESI is introducing an offering of SMAs through the Illuminations, the Envestnet platform.
What are the account minimums for SMAs?
The minimum account for an SMA is $150,000. However, manager minimums will vary (e.g. $100,000 – $500,000).
What are the fees for SMAs?
There is a platform fee, (i.e. custody, trading, account administration and technology) which is determined by the size of the account and will decrease at various breakpoint levels. The platform fee begins at 34BPS for $150,000. The manager fee varies by manager and investment strategy. The fees can be reviewed on the Illuminations site.
Why would clients invest in SMAs – what are the advantages and disadvantages?
- SMAs may be customized to meet the individual investor’s needs, goals, and principles. Securities may be excluded at a sector or individual company level at the client’s request.
- SMA investors directly owns all securities in the account. That’s different from a mutual fund, which is a pool of securities that many investors jointly own.
- There is generally more transparency of the securities’ current value. Investors in an SMA can easily see the current value of their investments. The value of a separately managed account can be easily monitored daily. Clients receive regular reporting, including the purchase and sales activity in the account. The account statements outline the securities owned, the number of shares, and many other details. And you can check this information at any time. All this information and communication leads to greater transparency and serves as the basis to better understand what you own.
- Tax management by optimizing investment decisions – gain and loss management – around taxes on a year by year basis.
- SMAs are generally comprised of general securities which typically do not have internal expenses and may assess lower expenses than actively managed mutual funds.
- Time efficiency. SMAs are managed by 3rd party asset managers, which allows the advisor to focus on their client relationship goals and not on investment research and management responsibilities.
Disadvantages of SMAs
- The account minimum may be larger than many mutual fund or ETF model portfolios.
- SMAs – in addition to platform fees – will also generally charge manager fees. The fees, (platform + manager fee) may be more than some mutual fund and ETF model portfolios.
- SMAs may include multiple managers that have different fee levels, which could blend the overall fee to the client.
Will our SMAs accept securities in kind – assuming they are consistent with the SMA manager’s investment strategy?
No, they won’t accept securities in kind.
What are the additional fees for overlay management? How are they reported – as a manager, platform, or separate fee?
The fees for Impact and Tax Overlay is 10 BPS. The 10 BPS applies if one or both overlay service is used. It will be listed as part of the platform fee.
How do advisors score into SMAs through the proposal process? Is it separated from the FSPs?
The advisor needs to select Build Unified Managed Account. Otherwise the process is very similar to the FSP proposal.
How do I learn more about SMAs through Illuminations?
The Illuminations website contains the manager specific information, (e.g. investment strategy, expenses, portfolio composition and performance history). If you have questions or would like to pursue offering SMAs for your clients, please contact ESI Advisory Services 800-344-7437 or Sandy Colvin at SColvin@nationallife.com.
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