Harvest financial growth through SMAs

Wines & Vines, April, 2003 by Mark Z. North

If your goal is to try to cultivate a healthy yield from today's crop of investment opportunities, while attempting to reduce risk, it's essential to focus on the "three D's" of investing: diversification, diversification, diversification.

Whether someone is investing for retirement, college savings, estate planning, or other goals, the most vital element of diversification is perhaps not the specific securities one buys, but rather how the investor allocates his investment dollars among different classes of securities (like large-cap growth stocks, large-cap value stocks, international stocks, and bonds, for example).

What Is A Separately Managed Account?

A separately managed account (SMA) is a professionally managed private portfolio of stocks and bonds that you own. This portfolio is actively managed and guided by a seasoned investment management team.

SMAs offer investors a process-oriented approach to investing, rather than a product sale. The process begins with a financial advisor assessing your financial needs and goals, time horizon, and risk tolerance. Your advisor then recommends a portfolio strategy customized to meet your needs. Once you agree with the strategy, a professional portfolio manager buys and sells stocks and bonds in your portfolio on your behalf. Your portfolio's performance is systematically monitored by your financial advisor. The SMA service is an ongoing process that enables you to monitor the health of your portfolio and adjust it accordingly, all with the guidance of your financial advisor.

The SMA Advantage

Above all, a separately managed account enables you to own a portfolio customized for your changing and longer-term needs. Your stocks and bonds are managed, and monitored, by investment specialists.

If you are looking to grow wealth in a disciplined fashion, SMAs provide:

* Access to experienced money management talent. Minimums are usually $100,000-$300,000.

* Customization. A portfolio tailored to meet your long- and short-term cash needs. The customization process also enables you to indicate stocks you do not want held in the account for personal, social or environmental reasons.

* Direct ownership of stocks and bonds. A separately managed account enables you, the investor, to own outright a managed portfolio of stocks and bonds.

* Tax efficiency. Outright ownership of your securities means you can harvest capital gains and losses as you see fit for tax management purposes.

* Account transparency. There are no hidden fees. You do not incur transaction costs from the regular sale and purchase of stocks and bonds in the account. The fee is a pre-negotiated percentage of your portfolio balance, so the portfolio manager's and your incentives are directly aligned. The fee is incurred quarterly.

* Comprehensive reporting. Your financial advisor regularly monitors the portfolio. You receive a detailed quarterly report of your account balance, asset allocation and all the activities in the account during the period.

The Broader Fit

Whether you are seeking to generate income or preserve your current lifestyle in retirement, a separately managed account enables you to better handle the wealth management process. Across the financial industry, the SMA is considered the "next generation" of investments for the individual investor. It offers you access to professional money management coupled with on-going guidance from your financial advisor. The SMA service is available for your taxable portfolio, 401(k) rollover, IRA and trust assets.

This article does not constitute tax advice. Investors should consult their personal tax advisors before making any tax-related investment decisions. In formation and data in this report were obtained from reliable sources. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed a solicitation on Morgan Stanley's part with respect to the purchase or sale of securities or commodities. Investments and services are offered through Morgan Stanley D W., member SIPC.

(Mark Z. North spent seven years writing for national and international magazines before moving to Napa to join The Zimmerman Group at Morgan Stanley. He can be reached at (707) 254-4408 or at mark.north@morganstaneley.com.)