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Educational Materials
for U.S. Expats

Separately Managed Accounts for Americans Abroad

Aug 8, 2019 | Investment Concepts

We recently updated our U.S. Expatriate Guide to Investing: in the guide we discuss the overall strategic approach to constructing a portfolio for Americans Abroad, but we don’t go into detail about which specific products we use or recommend.  

One such idea is a separately managed account (SMA).  A separately managed account means that investors hold individual stock positions that are managed by an outside money manager. Such a manager may also run a mutual fund with a similar strategy, but an SMA allows for further customization.

As Investopedia describes

“In other words, if you set up a separate account with Money Manager X, then Manager X has the discretion to make decisions for this account that may be different from decisions made for other accounts [managed by the same Money Manager X].”

In the Guide to Investing, we describe the specific issues that face U.S. Expatriate investors, including currency management and tax management.  Separately managed accounts allow investors a unique ability to address these concerns, for instance they can construct an efficient portfolio that is tax-compliant in their country of residence and the United States while it also produces income in the local currency.

SMAs show their worth in terms of tax management, as well.  As Parametric (a manager of SMAs) notes: “For many high-net-worth investors, taxes can represent a larger drag on returns than fees or trading costs—and the alpha most managers generate isn’t large enough to cover their clients’ taxes. As a result, taxes have a major impact on the long-term growth of a portfolio. It’s a challenge that requires continuous, thoughtful management.”  (As I was writing, this detailed examination of the topic popped up in my inbox).

Such high tax concerns are magnified when examined through the lens of higher capital gains tax rates facing U.S. expats and SMAs can enable tax reduction through:

  • Precise tax loss harvesting
  • Targeted gifting and estate planning strategies
  • Targeted philanthropic giving

For more information on any of these topics, contact us for a “fit” meeting and read more on our blog. 

 

 

 

Walkner Condon Financial Advisors is a registered investment advisor with the SEC and the opinions expressed by Walkner Condon Financial Advisors and its advisors in this piece are their own. Registration with the SEC does not imply a certain level of skill or training. All statements and opinions expressed are based upon information considered reliable although it should not be relied upon as such. Any statements or opinions are subject to change without notice.

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