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These customizable portfolios are tailor-made for investors

They are customizable, transparent and offer tax efficiencies for investors.

They are separately managed accounts, which are a portfolio of securities directly owned by the investor and managed according to a specific discipline and/or style by a professional investment manager.

While mutual funds offer the masses an affordable mechanism for achieving portfolio diversification with management expertise, they offer very little in the way of flexibility or control, like SMAs, according to some industry experts.

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Investors select funds based on their financial objectives and take their hands off the wheel. They can't select the securities within the fund or influence strategic direction.

Designed to deliver the kind of personalized money management once reserved for institutional investors (e.g., pension plans or endowments), SMAs are a portfolio of securities directly owned by the investor and managed according to a specific discipline or style by a professional investment manager.

Separate account owners can customize their holdings by excluding certain securities or industries. They may, for example, wish to screen for tobacco or defense stocks or purchase only shares of companies that are committed to social and environmental good.

Entrepreneurs and employees who are overweight in their company's stock may also benefit from an SMA, said John Rekenthaler, vice president of research for mutual fund tracker Morningstar.

"If someone has a big position in company stock that accounts for a large percentage of their net worth, perhaps because they were paid in options, they might use a managed account to diversify away from that position or sector," he said.

Tax efficiency is the other oft-cited benefit of owning separate accounts, which typically produce better after-tax returns than their mutual fund counterparts.

How so?

SMA holders pay taxes only on the capital gains they actually realize, and they can pick which lot of shares are to be sold, to avoid triggering short-term capital gains on stocks held less than a year, which are taxed as ordinary income.

"Anyone with at least $500,000 to invest can benefit from an SMA, no question. That's particularly true in a volatile market with rising interest rates." -Bob Andres, chief investment officer of Andres Capital Management

By contrast, investors who hold mutual funds in their taxable accounts get hit with taxable distributions for transactions made within the fund, even if they didn't sell any shares — and even if the fund itself ended the year at a loss.

"Separately managed accounts are more focused on selling losers and harvesting winners," said Rekenthaler. "You don't get that with a mutual fund, because most fund managers are focused on achieving the best pretax return.

"That's the measure for how mutual fund bonuses are paid, how Morningstar ratings are given and how mutual funds are evaluated."

To minimize tax burden, separate account managers can also defer gains, tilt away from dividend-paying stocks and harvest losses to offset capital gains based on the account holder's tax bracket and liability.

Tax-managed mutual funds and exchange-traded funds deploy some of the same strategies, but can't target their approach for any one investor.

"Tax-efficient mutual funds and ETFs can't manage their tax liability with any specificity," said Tom O'Shea, associate director for financial research and consulting firm Cerulli Associates. "You're riding the bus with everyone else."

Despite their obvious benefits, however, SMAs are not an option for everyone. With average account minimums of $100,000 or more, depending on the degree of customization sought, they are primarily targeted to affluent investors.

Fidelity Equity-Income Strategy, for example, one of Fidelity's three SMAs, requires a minimum $200,000 investment and charges a gross annual advisory fee of 0.30 percent to 0.90 percent based on total assets invested.

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SMAs can be particularly cost prohibitive for style-based investors who seek to diversify their allocation with exposure to broad asset categories, such as large capitalization, value, growth, international and emerging markets. A separate minimum would be necessary for each SMA "silo."

As such, some financial advisors suggest SMAs are best suited for those with investable assets of $1 million or more — those with resources sufficient to achieve scale comparable to a mutual fund.

But Bob Andres, chief investment officer of Andres Capital Management, said he believes they make sense for investors with half that amount.

"Anyone with at least $500,000 to invest can benefit from an SMA, no question," he said. "That's particularly true in a volatile market with rising interest rates."

In periods of volatility and uncertainty, said Andres, SMAs are uniquely positioned to weather the storm because account managers can respond quickly to economic and market pressures.

"If you're running a $4 billion mutual fund and rates rise, the fund manager is going to have to deal with redemptions and liquidity," he said. "It's like trying to turn an aircraft carrier around in the Hudson River.

"In an environment of uncertainty and the possibility of rising rates, you want to have all the flexibility that comes with SMAs."

Funds and SMAs, however, need not be mutually exclusive. Increasingly, separate accounts are used in tandem with mutual funds and ETFs within unified managed accounts, or UMAs — a new hybrid of sorts in the managed account line.

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According to research firm Cerulli, the value of unified managed accounts reached nearly $371 billion in 2014, up from $303 billion in 2013, with a three-year compounded annual growth rate of 34 percent. By contrast, the value of separately managed accounts grew to $838 billion in 2014 from $761 billion in 2013. Its three-year CAGR is 15 percent.

"There's a real move toward the UMA delivery model in which investors may have one separate account, typically for domestic equity exposure, and then they use mutual funds and ETFs to gain exposure to other asset classes, like international and fixed income," said Cerulli's O'Shea.

With lower advisory fees and investment minimums, UMAs are more attainable for average investors. They are also more user-friendly.

"Rather than having multiple brokerage accounts with multiple statements for each separate account, UMAs offer a single account with one performance statement, so it's a more streamlined experience for both the broker and the client," said O'Shea.

As managed account models continue to evolve, he said, many brokerage firms are now offering UMAs with an "overlay portfolio manager" to ensure the transactions executed by the SMA manager and the individual fund managers don't inadvertently leave the investor overweight in any one sector, or trigger the wash sale rule by selling a security at a loss and then buying it back within 30 days.

"It's not really about SMAs vs. mutual funds anymore," said O'Shea. "We've come a long way.

"UMAs have become a container, a vehicle agnostic, that most mass-affluent investors can take advantage of."

— By Shelly Schwartz, special to CNBC.com