Fidelity SMA (Separately Managed Account)

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arf1410
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Fidelity SMA (Separately Managed Account)

Post by arf1410 »

I've got a non-trivial amount at Fidelity (private client group) that is self managed. My adviser seems to be gently pushing SMAs, and even though I like him, whenever an adviser provides a recommendation, I get a bit nervous that the main reason is commissions or fees. I've done a little research, but still not clear - is there really anything an SMA does better that mutual funds and / or ETFs?
Jack FFR1846
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Re: Fidelity SMA (Separately Managed Account)

Post by Jack FFR1846 »

As another private client with fidelity, I think you need to join my group. When I met my PC manager that one time he said "oh, you're the index guy".

They have no magic.
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livesoft
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Re: Fidelity SMA (Separately Managed Account)

Post by livesoft »

arf1410 wrote: Fri Mar 23, 2018 8:23 pm...- is there really anything an SMA does better that mutual funds and / or ETFs?
Definitely not. One should be able to invest tax-efficiently without worry with ETFs and index mutual funds. Also one can tax-loss harvest, too. If this money is in tax-advantaged accounts, then SMA has no place for such accounts at all.

OK, one thing that SMA does better is line the pockets of Fidelity at their clients' expense.
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Murgatroyd
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Re: Fidelity SMA (Separately Managed Account)

Post by Murgatroyd »

Others may disagree. I posted this on a different thread (a bit edited here):

Approximately 15% of our assets are in Fidelity’s “tax advantaged” SMA. This account mirrors the S&P 500 in return but is Managed to harvest tax losses. We’ve been in it for over 2 years and love it. Even with the roughly .6% fee it delivers the S&P return and a good bit of short and long term losses. It has thrown off a nice amount to offset capital gains. It makes TLH easy. There is a 200k minimum.

Customers with SMA accounts get an advisor as part of it. We talk twice a year with him about our entire account. He's helped immeasurably in decisions regarding fixed income. Pretty good deal.

There is a lot of churn inside this account but they do not charge for trading, just the fee noted above. I do taxes with TurboTax so the "churn" is not recognized because of downloading the 1099 into the program. I would think if you had an accountant do your taxes it could up the charge.

We've looked at the other SMA's and don't think any are worthwhile.
mhalley
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Re: Fidelity SMA (Separately Managed Account)

Post by mhalley »

They have lots of magic: nothing up my sleeve, poof! 1% of your money disappears. Over and over again, year after year :oops:
(I don’t know what they actually charge, but I don’t believe it is zero, but certainly must be more than fidelity go.)
Last edited by mhalley on Sat Mar 24, 2018 11:08 am, edited 1 time in total.
mhalley
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Re: Fidelity SMA (Separately Managed Account)

Post by mhalley »

duplicate
Topic Author
arf1410
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Re: Fidelity SMA (Separately Managed Account)

Post by arf1410 »

Murgatroyd wrote: Sat Mar 24, 2018 11:01 am Others may disagree. I posted this on a different thread (a bit edited here):

Approximately 15% of our assets are in Fidelity’s “tax advantaged” SMA. This account mirrors the S&P 500 in return but is Managed to harvest tax losses. We’ve been in it for over 2 years and love it. Even with the roughly .6% fee it delivers the S&P return and a good bit of short and long term losses. It has thrown off a nice amount to offset capital gains. It makes TLH easy. There is a 200k minimum.

Customers with SMA accounts get an advisor as part of it. We talk twice a year with him about our entire account. He's helped immeasurably in decisions regarding fixed income. Pretty good deal.

There is a lot of churn inside this account but they do not charge for trading, just the fee noted above. I do taxes with TurboTax so the "churn" is not recognized because of downloading the 1099 into the program. I would think if you had an accountant do your taxes it could up the charge.

We've looked at the other SMA's and don't think any are worthwhile.
I have heard about tax loss harvesting ... but not sure I'm even completely sold on that. You take the tax loss today, but doesn't that just lower the cost basis for later? I guess if you'll hold till death, than that may not matter. However, we are in the 24% tax bracket, and live in a state with NO income tax. While my crystal ball is much better at "predicting" past tax rates, than future, I tend to think the odds are I'll be in a higher tax rate down the road, especially if we eventually retire or move to a state with a state income tax. And doesn't the "wash" rule prevent me from taking the loss, then buying essentially the same holding again in less than 30 days? So even though they are not literally the same, I could not sell a Fidelity S&P 500 fund, take a loss, then buy the Vanguard the next week...
Last edited by arf1410 on Sat Mar 24, 2018 1:25 pm, edited 2 times in total.
CppCoder
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Re: Fidelity SMA (Separately Managed Account)

Post by CppCoder »

arf1410 wrote: Sat Mar 24, 2018 12:39 pm I have heard about tax loss harvesting ... but not sure I'm even completely told on that. You take the tax loss today, but doesn't that just lower the cost basis for later? I guess if you'll hold till death, than that may not matter. However, we are in the 24% tax bracket, and a state with NO income tax. While my crystal ball is much better at "predicting" past tax rates, than future, I tend to think the odds are I'll be in a higher tax rate down the road, especially if we eventually retire or move to a state with a state income tax. And doesn't the "wash" rule prevent me from taking the loss, then buying essentially the same holding again in less than 30 days? So even though they are not literally the same, I could not sell a Fidelity S&P 500 fund, take a loss, then buy the Vanguard the next week...
A few points:
  • You can subtract up to $3,000 in losses from your income per year. So, you can take a capital loss at your marginal tax rate and eventually sell that same difference at the capital gains rate arbitraging the tax difference.
  • You may never realize gains. As you mentioned, death is one such means. Another is to donate appreciated shares.
  • Many people think they will be in a higher tax bracket in retirement, but most will not (exceptions: crazy high pretax savings or pensions).
  • The wash rule is not precisely defined for substantially similar holdings. Some argue the same index but different fund company is different. Others argue it's safer to switch to a similar performing index (S&P 500 to total stock market). To the best of my knowledge, it's not been tested in court.
Murgatroyd
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Re: Fidelity SMA (Separately Managed Account)

Post by Murgatroyd »

CppCoder wrote: Sat Mar 24, 2018 1:20 pm
arf1410 wrote: Sat Mar 24, 2018 12:39 pm I have heard about tax loss harvesting ... but not sure I'm even completely told on that. You take the tax loss today, but doesn't that just lower the cost basis for later? I guess if you'll hold till death, than that may not matter. However, we are in the 24% tax bracket, and a state with NO income tax. While my crystal ball is much better at "predicting" past tax rates, than future, I tend to think the odds are I'll be in a higher tax rate down the road, especially if we eventually retire or move to a state with a state income tax. And doesn't the "wash" rule prevent me from taking the loss, then buying essentially the same holding again in less than 30 days? So even though they are not literally the same, I could not sell a Fidelity S&P 500 fund, take a loss, then buy the Vanguard the next week...
A few points:
  • You can subtract up to $3,000 in losses from your income per year. So, you can take a capital loss at your marginal tax rate and eventually sell that same difference at the capital gains rate arbitraging the tax difference.
  • You may never realize gains. As you mentioned, death is one such means. Another is to donate appreciated shares.
  • Many people think they will be in a higher tax bracket in retirement, but most will not (exceptions: crazy high pretax savings or pensions).
  • The wash rule is not precisely defined for substantially similar holdings. Some argue the same index but different fund company is different. Others argue it's safer to switch to a similar performing index (S&P 500 to total stock market). To the best of my knowledge, it's not been tested in court.
These points are exactly why this account is great. I don’t have to worry about any of it. The way it was explained is there are numerous stocks that behave the same within sectors. And we’ve experienced it. So they sell one and buy another simultaneously. We enjoy the gains AND the losses. Market volatility makes their job easier. Last year was tough because the S&P went straight up. But in 2016 a lot of losses were generated.

I’ve been around a long time and IMO this is the best innovation since ETF’s.
MisterEd
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Re: Fidelity SMA (Separately Managed Account)

Post by MisterEd »

I found Murgatroyd's comments from a year ago very informative. I'm considering putting the min $200k into Fidelity Tax-Managed U.S. Equity Index Strategy. Are there others out there who have this account and are in the 22% income/15% capital gains tax brackets? Happy with this investment?
smashleyjones
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Re: Fidelity SMA (Separately Managed Account)

Post by smashleyjones »

I'm also looking at moving money into the Fidelity Tax-Managed SMA, but not sure I see the value over my current situation:

My current portfolio is about $500k with
    75% domestic (brokerage and Roth with FXAIX, 401k with VTSMX)
      15% bonds (brokerage and Roth with FXNAX)
        7% international (brokerage with FZILX)
          3% cash/CD

          While I make close to six figures, I'm a high saver, low spender. My 2018 effective tax rate was 13%. For the past few years I receive several hundred in federal tax return and owe IL a small amount.

          Also, I plan to retire in 6 years at the age of 40. My "income" from the portfolio will be much less than my current income from work, so I won't be taxed on long-term capital gains.

          Does it make sense to set up the SMA for the next few years pre-retirement?
          afan
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          Re: Fidelity SMA (Separately Managed Account)

          Post by afan »

          Will they invest in cap weighted index funds?
          Never trade to try to beat the market?
          Never change asset allocation based on their predictions of returns of different assets classes?
          Never call me to talk about my investments?
          Never try to sell me anything else?
          Charge me nothing?

          If they would do all that, then I would consider investing with them. Of course I can get all of that for free.

          So I would really consider them if they paid me enough to make it worth my while.

          I would probably accept 0.6% of assets to let them manage my money along the terms above.
          We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
          livesoft
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          Re: Fidelity SMA (Separately Managed Account)

          Post by livesoft »

          smashleyjones wrote: Fri May 03, 2019 9:50 amDoes it make sense to set up the SMA for the next few years pre-retirement?
          In my opinion, it never ever makes sense to set up a separately managed account. The reason is that it is just a way to trap one into remaining with that vendor because to unwind the assets will always be a nightmare. We see new posts about this quite often at Bogleheads.org.

          One can invest tax-efficiently and do their own tax-loss harvesting without using the SMA by using low-expense-ratio, passively-managed index funds.
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          David_w
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          Re: Fidelity SMA (Separately Managed Account)

          Post by David_w »

          Hi all. I know this thread is old but I am now facing this same thing. I already have a Fidelity managed account so that is not an issue with me, I am currently happy giving them a percent to take care of things. I am in the top income tax bracket and today had a conversation with them about moving into an SMA. Aside from tax harvesting and other tax advantages they said it is less expensive as far as their fees goes. I don't know anything about SMA and just wondering given I am happy to have them manage some of my investments anyhow is there any reason not to let them move me into an SMA?

          The only thing is what is one day I want tot move away from them, then that could get messy or expensive ?
          MidMNtom
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          Re: Fidelity SMA (Separately Managed Account)

          Post by MidMNtom »

          I retired in January of this year and used the services of Fidelitys SMA's.

          Part of the issue was that I was simultaneously applying for delayed Medicare benefits for DW and I. We had only so much time to devote to investments before our deadlines and I couldnt afford to get the investments part wrong.

          I was converting 2 pensions, 1 trust, and more than a couple Roths and IRA's from old employers and brokers.

          Since I needed to do this tax efficiently, I used Fidelitys guidance. Some of this I was capable of doing myself, but I had large capital gain issues at risk.

          Also, I needed some help setting up the bond portion of our portfolio to insure some cash flow since I'm delaying Soc. Sec.

          So far the rate of .037 has been worth it for me. They had come up with some bond ideas that I would not have thought of.

          The question will be.... should I continue the SMA in 2021? And If I dont, how difficult will it be to convert it back to just a regular account?

          Stay tuned and best of luck to you.
          grok87
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          Re: Fidelity SMA (Separately Managed Account)

          Post by grok87 »

          Murgatroyd wrote: Sat Mar 24, 2018 11:01 am Others may disagree. I posted this on a different thread (a bit edited here):

          Approximately 15% of our assets are in Fidelity’s “tax advantaged” SMA. This account mirrors the S&P 500 in return but is Managed to harvest tax losses. We’ve been in it for over 2 years and love it. Even with the roughly .6% fee it delivers the S&P return and a good bit of short and long term losses. It has thrown off a nice amount to offset capital gains. It makes TLH easy. There is a 200k minimum.

          Customers with SMA accounts get an advisor as part of it. We talk twice a year with him about our entire account. He's helped immeasurably in decisions regarding fixed income. Pretty good deal.

          There is a lot of churn inside this account but they do not charge for trading, just the fee noted above. I do taxes with TurboTax so the "churn" is not recognized because of downloading the 1099 into the program. I would think if you had an accountant do your taxes it could up the charge.

          We've looked at the other SMA's and don't think any are worthwhile.
          interesting comment about "churn". i've heard anecdotally that Fidelity SMA accounts are heavily churned. there is an article today about merrill being investigaged in NH for churning accounts.

          my a priori opinion is that churn, even if it appears costless, is detrimental to investor returns. even if trades appear free there are bid/ask spreads etc.

          i'm planning to consolidate my accounts to vanguard. that way if at some point i am no longer "compos mentis" the worst that can happen is vanguard will talk the person managing the accounts into a 0.4% PAS annual fee. rather than being endlessly churned at who knows what cost at a for-profit shop like merrill or fidelity...
          RIP Mr. Bogle.
          PBOly
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          Re: Fidelity SMA (Separately Managed Account)

          Post by PBOly »

          I have been approached by Fidelity and they went through a whole retirement evaluation and now recommend Fidelity SMA for my IRA. It is about 800K and they say the costs are about 0.69. Reading this thread it seems an advantage of the SMA is for tax avoidance strategies. This is not a concern for an IRA because I just pay tax as I take disbursements. Should I just stick with my self managed IRA account which is mostly invested in index funds and the Fidelity Contra Fund (FCNTX)?

          I was thinking to give them 50% of the account for SMA and keep 50% invested with my normal method. Then I can compare the net asset value of each bucket over time to see who does better.
          livesoft
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          Re: Fidelity SMA (Separately Managed Account)

          Post by livesoft »

          PBOly wrote: Fri Nov 20, 2020 1:07 pmI was thinking to give them 50% of the account for SMA and keep 50% invested with my normal method. Then I can compare the net asset value of each bucket over time to see who does better.
          I am selfish, so I would like you to do this and to report back in this thread every 6 to 12 months to tell us how it is going. Thanks!
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          tj
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          Re: Fidelity SMA (Separately Managed Account)

          Post by tj »

          livesoft wrote: Fri Nov 20, 2020 2:52 pm
          PBOly wrote: Fri Nov 20, 2020 1:07 pmI was thinking to give them 50% of the account for SMA and keep 50% invested with my normal method. Then I can compare the net asset value of each bucket over time to see who does better.
          I am selfish, so I would like you to do this and to report back in this thread every 6 to 12 months to tell us how it is going. Thanks!
          +1
          SlowMovingInvestor
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          Re: Fidelity SMA (Separately Managed Account)

          Post by SlowMovingInvestor »

          Murgatroyd wrote: Sat Mar 24, 2018 11:01 am Customers with SMA accounts get an advisor as part of it. We talk twice a year with him about our entire account. He's helped immeasurably in decisions regarding fixed income. Pretty good deal.
          I just wanted to point out here that you get an advisor if you're private client anyway. Possibly the SMA advisor goes over more detailed plan stuff, and gets into more specifics.
          tj
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          Re: Fidelity SMA (Separately Managed Account)

          Post by tj »

          SlowMovingInvestor wrote: Sun Nov 22, 2020 6:28 pm
          Murgatroyd wrote: Sat Mar 24, 2018 11:01 am Customers with SMA accounts get an advisor as part of it. We talk twice a year with him about our entire account. He's helped immeasurably in decisions regarding fixed income. Pretty good deal.
          I just wanted to point out here that you get an advisor if you're private client anyway. Possibly the SMA advisor goes over more detailed plan stuff, and gets into more specifics.
          Does that mean you need $1,000,000 to get the free advisor? What did they have to say about fixed income?
          SlowMovingInvestor
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          Re: Fidelity SMA (Separately Managed Account)

          Post by SlowMovingInvestor »

          tj wrote: Sun Nov 22, 2020 6:44 pm
          SlowMovingInvestor wrote: Sun Nov 22, 2020 6:28 pm
          Murgatroyd wrote: Sat Mar 24, 2018 11:01 am Customers with SMA accounts get an advisor as part of it. We talk twice a year with him about our entire account. He's helped immeasurably in decisions regarding fixed income. Pretty good deal.
          I just wanted to point out here that you get an advisor if you're private client anyway. Possibly the SMA advisor goes over more detailed plan stuff, and gets into more specifics.
          Does that mean you need $1,000,000 to get the free advisor? What did they have to say about fixed income?
          Private client gets you a free advisor (at $1M), and a once a year financial checkup. Honestly, I rarely make use of it. Fidelity does have fixed income advisors, and a bond desk and I suspect they'd redirect me there if I asked for fixed income advice. I do know they have Fixed Income SMAs too.
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