Model-based Separately Managed Accounts (SMAs) are an expression of financial evolution, a step forward from the legacy of mutual funds.

Advisors use tools and technology to help make investment decisions but ultimately must rely on their professional expertise to ensure that the tools are guiding them to the best financial decisions for their clients. Still, the tools that the advisor chooses play an essential role in the success of their clients and their business over the long term. One tool that is increasingly utilized in the investment management universe is the model portfolio-based SMA, which is delivered to the client via an overlay manager . An overlay manager is responsible for trading the model, managing tax exposure and other customizations for the specific client. Using an overlay manager opens some unique opportunities for an investor and represents a step forward as a new and powerful tool for advisors.

Customizable and tax-efficient , model-based SMAs are an advancement above the legacy of mutual funds. Removing the mutual fund wrapper allows a model’s strategy to be more applicable to a client’s unique tax situation, and likely offering cost savings. Essentially, a model-based SMA investors can reach into the model to pick and choose which tax-lot to sell – thereby optimizing the after-tax impact. Mutual fund holdings, on the other hand, ignore an investor’s unique tax profile and will generate capital gains distributions, even for long-term investors.

Coordinating multiple model-based SMAs in a single, cohesive account (such as a Unified Managed Account (UMA)) is the job of the overlay manager, who receives trading signals from model providers. This team of Overlay Manager + Model Provider helps support the advisor by executing the model provider’s strategies alongside individualized account-level client needs.

The advisor is the key here, as the advisor knows the client. The overlay manager and model provider are the outsourced solutions that help give the advisor the best chance to deliver on the client’s financial goals. To learn more, visit

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