Dimensional SMAs: Advisors Tell Us What They Think

In September 2021, we launched our expanded separately managed accounts (SMA) offering to enable advisors to provide personalized investment solutions powered by Dimensional Investing to a wider range of investors. Since then, we have continued to enhance our SMA offering to better meet the needs of advisors and their clients. For example, we have increased the number of direct security starting strategies and added the ability for accounts to include ETFs.

Advisor feedback plays a critical role in helping us prioritize our enhancement efforts. Earlier this year, after crossing $2 billion in assets managed across more than 700 accounts, we conducted our first annual SMA advisor service survey. Now that the results are in, I sat down with Andy Smith, a Dimensional veteran and Head of SMA Solutions, to talk about what we learned.

Matt: Andy, to start things off, can you tell me about the SMA Solutions team at Dimensional?

Andy: Sure. We are a dedicated team of SMA specialists established to support advisors. Our goal is for advisors to feel they have a strong partner on their SMA journey. To do that, we provide onboarding sessions to each new advisor on the platform. We also help advisors navigate account launches. Once an account is launched, we help advisors implement end investor requests such as tax-efficient redemptions and giftings. Finally, we help advisors evaluate portfolio changes when client needs change. Dimensional SMAs are a powerful tool in the advisor tool belt, and we help advisors use them effectively with existing and prospective clients.

Matt: I think that’s a good segue to dive into the survey results, since the first question I wanted to highlight is about your team. The average response to the question “How would you rate your overall service experience with the Dimensional SMA team?” was 4.7 out of 5.¹ What do you think earned you such a high mark?

Andy: I built out our SMA Solutions team with folks who have extensive experience in the SMA space, so from the beginning we had a strong vision of the services we wanted to provide to deliver an exceptional experience for advisors. It was validating and very rewarding to see such a high score, especially considering that we are working with such a diverse range of financial professionals—from advisors cautiously launching house account SMAs for the first time to experts converting large books of business from other SMA managers.

It was important to hear from advisors how we were doing after two years of service, and we plan to survey advisors regularly to make sure we continue to improve.

Matt: That feedback loop is so important to our ability to continue to meet the needs of advisors and their end clients across all of what we do at Dimensional. Now, let’s talk about a more specific aspect of our SMA service offering, the account launch process. The average response to the question “How would you rate your experience with your first account launch review session, including SMA Center review, SMA proposal creation, and Dimensional support with custody account setup?” was 4.5 out of 5.² What does your team do to support advisors getting started with Dimensional SMAs, and how did we develop our approach?

Andy: Many advisors launching Dimensional SMAs have existing relationships with Dimensional and are used to a high level of service across the firm. We’re proud of that reputation, so we intentionally developed our approach with the aim of providing that high level of service that advisors have come to expect from Dimensional.

The onboarding session is intended to help advisors have the smoothest possible first account launch experience and consider how customizations can be used. For example, in one meeting an advisor shared that the source of funding for his client’s SMA was earnings from an internet advertising firm the client had started. I suggested he consider sector and security screens as he was setting up the SMA proposal to account for the client’s potentially heavy exposure to the technology sector.

Our effort to provide a great experience with account launches, however, doesn’t end with the first account launch. We work closely with advisors on each account launch. We make sure every account is properly set up at custody and remind advisors to alert us of any recent trades in the account prior to launch to avoid inadvertent wash sales. We also provide detailed information on the different investment strategies and tax management approaches³ available on the SMA platform. For instance, some advisors like to hear how their peers think about Standard and Aggressive tax management. One thing I’ve noticed and like to mention is that some advisors use Aggressive when a liquidity event is imminent. Ultimately, we are trying to make sure every account launch is a great experience for the advisor and their client.

Matt: That makes a lot of sense—a strong focus on the advisor experience is an important part of our heritage and mentality as a firm, and I think it really shows in our approach to managed accounts. Another question in the survey I found very interesting is the one on using Dimensional SMAs to win new business. We received a high mark on that too.⁴ Can you speak to how our platform has helped advisors win new business?

Andy: Advisors increasingly are adding tax-planning services to their offering. Dimensional SMAs enable advisors to offer sophisticated tax management in the accounts that can be tailored to address investors’ unique tax circumstances, and we think that can make an advisor’s services more compelling to potential clients, especially those with a high level of tax sensitivity.

We often help advisors articulate the benefits of Dimensional’s investment approach, which goes beyond indexing and tax loss harvesting. I’ve been lucky to help support a few advisors in that capacity in conversations with prospects, ultimately leading to new business.

Matt: I’m sure those were rewarding experiences! Speaking of successes, we crossed $2 billion in assets for our expanded SMA offering earlier this year. What do you think are the aspects of our platform that have resonated the most with advisors?

Andy: Without a doubt, the investment experience. We developed our SMA solution to meet advisors’ need for a customized Dimensional investment experience, and we’ve delivered. SMA Solutions helps deliver that Dimensional investment experience while meeting often-nuanced client needs.

Matt: Andy, thanks so much for taking the time to go through these results. The last thing I wanted to ask, and something that I think advisors would find interesting to hear, is did we receive any feedback on potential enhancements that you can share?

Andy: Of course, I’m always happy to talk about Dimensional managed accounts. And yes, we received very helpful feedback from our advisor community. Multiple advisors asked for a unified managed account (UMA) that can hold direct securities, ETFs, and mutual funds. Last year we enabled the combination of direct equities and ETFs in our managed accounts. Very soon we will allow advisors to launch accounts that hold only ETFs (Dimensional and/or non-Dimensional). This will enable advisors to harness the benefits of the Dimensional managed account experience for an even broader range of investors. And we plan to work on integrating the ability to include mutual funds into our UMA offering later in the year.

I think these are both great examples of our continued efforts to innovate in an effort to provide a managed accounts platform designed for easy integration into an advisor’s business and a high level of personalization for investors.

Aggressive tax management: Dimensional offers four levels of tax management in Dimensional SMAs: None, Light, Standard, or Aggressive. Aggressive offers the most tax-sensitive approach to prioritizing tax deferral and minimizing taxable gains. It also applies a stronger emphasis on tax loss harvesting and tax considerations in the daily evaluation of tradeoffs between premiums, taxes, costs, and diversification.

Custody account: An account that is set up at a custodian to hold securities.

Direct security starting strategies: SMA direct security investment strategies available on Dimensional’s SMA platform for advisors to select and customize for individual investors.

House account: An account that is set up by an advisor with an advisor’s own assets, with the advisor as the beneficial owner.

Premium: A return difference between two assets or portfolios.

Separately managed account: A portfolio of assets managed by a professional asset manager in which the investor directly owns individual securities held in individual accounts.

Standard tax management: Dimensional offers four levels of tax management in Dimensional SMAs: None, Light, Standard, or Aggressive. Standard offers more emphasis than Light on reducing tax impacts while considering investment tradeoffs in daily management. It also limits short- and long-term realized capital gains and harvests meaningful tax losses.

Unified managed account: A portfolio of assets managed by a professional asset manager that can hold multiple types of investments—such as SMA strategies, mutual funds, exchange-traded funds, and individual stocks and bonds—directly owned by the investor.

Wash sales: Wash sales relate to a tax regulation that seeks to prevent investors from selling securities at a loss and then repurchasing the same or a substantially identical security in a span of 30 days before or after the sale in order to realize a capital loss for tax purposes. If the same or a substantially identical security is bought within that time frame, the loss is “washed” or, in other words, disallowed.