The Benefits of Outsourcing for Separately Managed Accounts (SMAs)

June 28, 2018 - Stephen Van de Wetering

Separately Managed Accounts (SMAs) for wealth and asset management operations are heavily felt in the back-office, where handling and reconciling so many individual accounts is time-consuming and eats into profit margins.

SMAs promote transparency and customization, allowing individuals to have better control over their investments, and investors have jumped on board in recent years.

Morgan Stanley cited a statistic from Cerulli Associates, which states that as of the first quarter of 2017, Separately Managed Accounts made up more than $1 trillion in total investment advisory assets, marking an 84% increase in assets since 2010.

Creating a sustainable model to support SMA activity will be up to the advisory firm, and one way to aid in that effort is by outsourcing the reconciliation work.

Separately Managed Accounts: The Benefits of Outsourcing

Saved Time

On one hand, it’s a good thing that investors come to your advisory firm to manage their portfolios. The management fees are what helps to keep the lights on and provides a little extra to reward the team for a job well done.

On the other hand, with every new account, it not only requires more time to research the right mix of securities and sectors for the individual portfolios, but it also adds to the workload of your back-office operations team.

It’s difficult and/or time-consuming to reconcile a (growing) number of separate accounts because of the high degree of customization. When accounts have unique securities and transaction history, there is a less predictable formula for finding the cash and positions reconciliation breaks across all portfolios.

This means more time is needed to investigate the discrepancies, and it can be overwhelming.

A middle- and back-office reconciliation outsourcing provider thrives on this kind of work, and to remove some or all of it from your plate will reduce operational work overload and free up capacity.

Saved Money

Reconciliation outsourcing services providers can perform the tasks at a considerably lower cost compared to the work being done in-house. In addition, rising costs will further motivate advisory firms to outsource, as the Financial Times demonstrated.

With back-office outsourcing, wealth and asset management firms are strictly paying for labor; they don’t have to worry about the other costs associated with an employee:

A Schwab report revealed wealth managers with more than $100 million in AUM that outsource data management and client reporting can reduce costs on average 25%.

In reality, the savings can be much higher if you choose the right reconciliation services outsourcing provider.


Fluctuations in workload can happen, and one of the operational challenges is having appropriate staffing levels to match the demand. Either you’re understaffed when work picks up or overstaffed when things slow down.

Maybe the fluctuations are a normal part of your business process, but the nature of hiring makes it difficult to adjust the staffing numbers because you might need to let people go only to need them a few months later. It’s hard to let someone go when you’ve invested so much in them, and if you’re not willing to cut them loose, you’ll struggle with justifying holding someone full-time for what may currently be part-time work.

A skilled portfolio accounting associate who seeks a full-time position may not have patience if his or her employment status in limbo, and as the labor market has tightened as our previous blog highlighted, the talent will find a home elsewhere.

Wealth and asset management back-office outsourcing companies solve the hiring challenge for you. Depending on your operation’s demands, the outsourcing providers can easily add or subtract labor to get the work done efficiently and at no cost to them and you.

They already have trained talent that is familiar with your portfolio accounting software, and adding or removing talent to handle your reporting needs will be a seamless process.

Portfolio Accounting Expertise

Reconciliation and performance reporting, billing, and cost basis are just some of the tasks a back-office services provider can do.

Their business model is based on delivering a customized, high-quality operational experience for investment managers, and middle- and back-office outsourcing companies have the resources and talent to handle the volume and complexity associated with reconciliation and reporting for Separately Managed Accounts.

Solutions for Separately Managed Accounts Reconciliation

Offering SMA services are a great way to expand your firm’s revenue streams, but the volume and complexity associated with the back-office operations reporting can reduce profitability, as the work takes time and is complicated.

Outsourcing the reconciliation and reporting functions associated with SMAs serves many purposes, including:

The benefits go beyond monetary reasons, as greater efficiency and access to portfolio accounting expertise can be had.

Operations managers should consider the benefits of outsourcing, and reaching out to a middle- and back-office services provider will let you know if outsourcing will help your firm’s profit margins and operating efficiency.