CFA Practice Question

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CFA Practice Question

The key difference between an SMA and a mutual fund is that ______
A. the required minimum investment of an SMA is much higher than is the case with a mutual fund.
B. in an SMA, assets are owned directly by the individual.
C. an SMA is managed by an investor while a mutual fund is managed by professional investment managers.
Explanation: The investor has direct control over which assets are bought and sold and the timing of the transaction.

User Contributed Comments 6

User Comment
tommyguard3 The investor has direct control over which assets are bought and sold and the timing of the transaction = C not B.

B talks about ownership. The explanation talks about management which is C.
alles As far as I know, SMA's are managed FOR an individual investor by investment managers (in a customized way according to his/her risk appetite), but not BY an individual investor. A and B are true, but maybe the key difference is that in an SMA assets are owned directly by the individual.
alles That's why the name: Separately MANAGED Account.
An "SMA" that is managed BY the investor is just a normal investment account.
thanhb91 Investors manage their assets but seek ADVICE from SMA's manager in return for management fee.
houstcarr Answer is definitely B. SMAs have investment management agreements between the beneficial owner and the investment manager (typically an institution), who makes the decisions. Last firm I was at strictly managed SMAs.
yvrlure This is from the textbook: The key difference between an SMA and a mutual fund is that the assets are owned directly by the individual. Therefore, unlike a mutual fund, the investor has control over which assets are bought and sold and the timing of the transactions.
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