The Impact of SMAs and Direct Investing on the Asset Management Value Chain

Separately Managed Accounts (SMAs) are not a new concept. But recent advancements in technology and rising investor expectations are pushing these capabilities into the mainstream. What was once reserved for private wealth clients is now within reach for a broader swath of investors. In this blog, we explore why interest is growing, the operational complexity behind this shift, and how firms can prepare.

For years, the pinnacle of investing was the ability to create fully customized portfolios, blending strategies across multiple asset classes, but historically, only wealthy individuals and family offices had the means to assemble a team of advisors and accountants to manage such complex, personalized investment structures. 

But that landscape has been rapidly shifting.

Today, the latest advancements in technology, data availability, and trading infrastructure are driving a top-down and bottom-up shift. At the top, institutional practices are being democratized and pushed downstream. At the bottom, retail investors are demanding more control and customization than funds have historically delivered.

The result is a new demand for custom SMAs and direct investing. This requires an entirely new level of transaction processing, accounting, and scalability – an increasing challenge for legacy platforms that simply cannot keep up with the volume. 

Moving to the Mainstream

For decades, most investors accessed the market through pooled vehicles like mutual funds and, more recently, ETFs. These provided diversification and professional management but lacked personalization and tax efficiency. Investors had little visibility into holdings, no control over timing, and limited ability to tailor investments to personal values.

While SMAs emerged as an alternative, they were often built around standard models and rebalanced without investor input. These accounts offered more transparency, but still didn’t deliver true customization or tax optimization.

By contrast, ultra-high-net-worth investors could construct personalized portfolios across asset classes—from public equities to alternatives—managed not just for performance, but for after-tax outcomes. Historically, this level of customization and tax optimization was almost unattainable for the mass retail investor.

But now the floodgates are opening. Thanks to fractional share trading, low-cost computing, and advances in digital onboarding, investors and advisors can build personalized portfolios using individual securities, once the domain of institutional platforms.

Technology Ushers in a New Era

The game changer that is bringing in these new opportunities is the convergence of fractional share trading and low cost computing. These elements make it realistic now for financial advisors to construct and manage personalized portfolios more broadly. 

A modern advisor can now help clients:

• Mirror an index or benchmark while excluding specific companies (e.g., employer stock)
• Optimize for tax efficiency based on personal gains and losses
• Align portfolios with values by screening out sectors like fossil fuels or tobacco

This degree of personalization used to require vast resources. Today, it’s not only possible, it’s expected.

White Hot Demand Meets a Chilly Reality

Supporting this kind of personalization requires an entirely new operational backbone. Legacy systems were designed to strike NAVs once per day based on pooled vehicles. They were optimized for hundreds, not millions of portfolios, and certainly not the high-frequency, tax-sensitive transactions that custom SMAs now generate.

For example, a mutual fund might generate 10 to 20 transactions per year for an investor while a custom SMA using direct investing might generate hundreds of transactions per year. This creates an increase in transaction volume across what could potentially be millions of accounts. 

Not only does this drive major data management issues, but also a fundamental infrastructure challenge. The core accounting and reporting systems used today by most institutional asset managers and service providers simply weren’t built for this. 

Scrambling to Catch Up

We’re already seeing the industry’s response. Leading asset servicers are scrambling to build, buy, or partner to gain these capabilities. We know that this isn’t just about ‘keeping up’, it’s about staying relevant.

As more investors come to expect personalized investing, advisors who can’t deliver will be left behind and delivering it profitably depends on having the right technology.

FundGuard has been closely watching this shift. Our platform was built from the ground up to support the next generation of investment accounting operations. We enable asset managers to grow to millions of portfolios, each with performance tracking. We also process transactions in real time and support individual customizations. 

Because we are built natively in the cloud, we can flex to meet demand. We’re not patching legacy tech. We’re powering what comes next.

The Bottom Line

The asset management industry is undergoing a shift from a product-centric to a person-centric approach to investing. Investors want portfolios that are custom fit to their values, goals, and needs. Now, with the technology available to support it, asset managers and advisors can deliver it at scale but only if they have the right technology infrastructure. 

The companies that adopt this change and move beyond legacy systems to invest in scalable, cloud-native platforms, will lead the next decade of asset management. The rest will be left behind, faltering due to the expectations of their own clients. 

Let’s talk about how our cloud-native platform can help your firm modernize investment accounting and deliver the personalization your clients expect.

Get in touch.