The Rise of Separately Managed Accounts

The investment landscape is undergoing a quiet but profound transformation in 2026, and separately managed accounts (SMAs) are at the center of it. According to FUSE Research Network, total SMA assets are projected to exceed $5.1 trillion this year, reflecting a compound annual growth rate of 15.4% over 2025 and 2026. This growth rate outpaces mutual funds at 3.5% and collective investment trusts at 7.7%, making SMAs one of the fastest-growing investment vehicles in the industry today.

Search interest in the term separate account has surged 515% year over year, according to data from Rising Trends, signaling that both financial advisors and individual investors are paying closer attention to this once-niche product. With assets expected to reach $5.1 trillion, SMAs have moved well beyond their origins as a wealth management tool reserved exclusively for ultra-high-net-worth clients.

What Makes Separately Managed Accounts Different

A separately managed account is a personalized investment portfolio managed by a professional asset manager on behalf of an individual investor. Unlike mutual funds or exchange-traded funds, where investors pool their money into a shared fund, an SMA provides each investor with their own distinct portfolio of individual securities. This structure offers several critical advantages that are driving the current surge in adoption.

Direct Ownership and Transparency

With an SMA, investors directly own the underlying securities in their portfolio. This means they can see exactly which stocks, bonds, or other assets they hold at any given time. Unlike a mutual fund, where holdings are only disclosed periodically and all investors share the same basket, SMA investors have full visibility into their positions and can make informed decisions about their exposure.

Tax Efficiency

One of the most compelling drivers of SMA growth is tax efficiency. Because each investor owns their securities directly, they can engage in tax-loss harvesting at the individual position level. When a particular stock declines, the manager can sell it to realize a loss that offsets gains elsewhere in the portfolio, then replace it with a similar security to maintain market exposure. This level of granular tax management is impossible in a pooled fund structure.

Customization and Personalization

SMAs allow investors to tailor their portfolios to specific needs and preferences. This includes:

• Restriction lists — excluding specific companies or sectors for ethical, religious, or business reasons
• Concentrated stock management — incorporating existing stock positions into the managed portfolio to avoid forced sales
• ESG and values-based screening — aligning investments with environmental, social, and governance priorities
• Transition management — gradually moving assets from one strategy to another without triggering large tax events

Why SMAs Are Booming Now

Several converging factors explain why separately managed accounts are experiencing explosive growth in 2026 specifically.

Technology Has Lowered Barriers

Historically, SMAs required substantial minimum investments, often starting at $250,000 or more. Advancements in portfolio management technology, fractional share trading, and automated rebalancing have dramatically reduced these minimums. Some platforms now offer SMA access with minimums as low as $25,000, opening the door to a much broader audience of mass-affluent investors.

The Personalization Imperative

Investors increasingly expect tailored solutions rather than one-size-fits-all products. A 2026 survey by Cerulli Associates found that personalization capabilities are now a top-three criterion for advisors selecting investment vehicles. SMAs deliver this personalization in ways that pooled funds simply cannot match, from tax optimization to values-based screening.

Regulatory Tailwinds

The SEC’s continued push for greater fee transparency and fiduciary accountability has accelerated the shift toward SMAs. The Department of Labor’s fiduciary rule, which expanded the definition of who qualifies as a fiduciary advice provider, has prompted advisors to seek investment vehicles that better align with their clients’ specific needs rather than offering generic fund recommendations.

Tax Pressures in a Higher-Rate Environment

With interest rates remaining higher for longer and tax policy uncertainty looming ahead of the 2026 midterm elections, investors are increasingly focused on after-tax returns. Treasury yields hovering near 2007 levels have created a competitive landscape where every basis point matters. SMA tax-loss harvesting capabilities become particularly valuable when investors face both higher income tax rates and significant capital gains from a multi-year bull market.

The Competitive Landscape

Major asset management firms are responding to SMA demand with expanded offerings and enhanced platforms. Capital Group, American Funds’ parent company, reported that its SMA strategies have seen significant inflows throughout 2026, with its U.S. Equity SMA delivering year-to-date gross returns of 11.6% as of August 31, 2026. The firm has invested heavily in technology to support SMA distribution at scale.

Lord Abbett, another prominent SMA provider, noted in its 2025 research that SMA assets are expected to reach $3.6 trillion based on Cerulli data, while FUSE’s more aggressive projection of $5.1 trillion reflects the inclusion of broader account types and accelerated growth trajectories.

The hedge fund industry is also seeing a parallel trend. According to Dechert’s October 2025 analysis, separately managed accounts are growing materially as a proportion of total hedge fund assets, as institutional investors seek greater transparency, liquidity, and control over their alternative investment exposures.

SMAs Versus Other Investment Vehicles

Understanding how SMAs compare to other popular investment structures helps clarify their unique value proposition.

• Mutual funds — Pooled investments with periodic holdings disclosure, no individual security ownership, and limited tax management. Lower minimums but less flexibility.
• ETFs — Exchange-traded pooled funds with intraday liquidity and generally lower costs. Tax-efficient at the fund level but offer no individual position customization.
• SMAs — Individual security ownership, full transparency, granular tax management, and complete customization. Higher minimums (though decreasing) and slightly higher fees, offset by after-tax performance benefits.
• Direct indexing — A specific form of SMA that tracks an index while allowing for customization and tax-loss harvesting at the constituent level. Often the entry point for investors new to separately managed accounts.

Challenges and Considerations

Despite their compelling advantages, SMAs are not without challenges. Investors should carefully consider several factors before allocating to a separately managed account.

Fee structures can be higher than passive ETF alternatives, though the gap has narrowed considerably. Investors must weigh the additional cost against the after-tax benefits and customization value. For portfolios where tax efficiency and personalization are priorities, the net benefit often justifies the fee premium.

Manager selection remains critical. The performance of an SMA depends entirely on the skill of the underlying asset manager. Investors should conduct thorough due diligence, examining long-term track records, investment philosophy, and consistency across market cycles.

Operational complexity is another factor. While technology has simplified SMA administration, managing multiple separately managed accounts across different asset classes and managers requires robust reporting and performance monitoring capabilities. Many advisors are investing in unified managed account platforms to address this challenge.

The Outlook for SMAs Beyond 2026

The trajectory for separately managed accounts points toward continued robust growth. Several structural shifts support this outlook. The ongoing democratization of financial services is pushing premium investment structures downstream to a broader investor base. Technology platforms are making SMA management increasingly efficient, with artificial intelligence assisting in portfolio construction, rebalancing, and tax optimization. The convergence of direct indexing, fractional shares, and SMA technology is creating a new category of personalized investment solutions that could reshape the asset management industry.

For investors, the implications are significant. The ability to own individual securities directly, customize portfolios to specific tax and values-based requirements, and benefit from professional management with full transparency represents a meaningful evolution in how wealth is built and preserved. As the $5.1 trillion milestone demonstrates, separately managed accounts are no longer a niche product — they are becoming a mainstream pillar of modern portfolio construction.

Key Takeaways for Investors

• SMA assets are projected to top $5.1 trillion in 2026, growing at 15.4% CAGR, outpacing mutual funds and CITs
• Search interest in separate accounts has surged 515% year over year, reflecting growing mainstream awareness
• Tax efficiency through individual position-level loss harvesting is a primary driver of SMA adoption
• Technology has lowered minimum investment thresholds, making SMAs accessible to a broader range of investors
• Customization capabilities including restriction lists, ESG screening, and concentrated stock management differentiate SMAs from pooled funds
• Investors should weigh higher fees against after-tax benefits when evaluating SMA allocations

As the investment industry continues to evolve toward personalization and tax-aware strategies, separately managed accounts are positioned to capture an increasing share of investor assets. The combination of direct ownership, professional management, and unmatched customization makes SMAs a compelling option for investors seeking more than what traditional pooled funds can offer.

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Edited by Palawan @QUE.COM
Website: https://QUE.COM Intelligence
Sponsored by: https://MAJ.COM AI Autonomous