"Say again?"

It wasn't long after I joined the Field Artillery that I learned that one did not say "repeat" over the radio, especially when speaking to anyone in an artillery battery, as this expression means to "fire again." Instead, one would simply speak the words "say again?" (You can often tell a former army guy, if they say this; you also know when they can spell phonetically (alpha, bravo, charlie, etc.)).

Well, sometimes one is tempted to ask the person one is speaking with to "say again?" when they hear something that is confusing, ambiguous, or unclear. This happened to me recently, when speaking with a client who was wondering about the proper treatment of fees, meaning custodial and management, for "SMA accounts." SMA stands for "separately managed account," and my initial question was "are you able to break the fees out?" Since this firm is a GIPS(R) (Global Investment Performance Standards) verification client of ours, I was a bit confused, since I didn't recall that they had any wrap accounts.

Well, there's the rub. You see, they don't have wrap accounts. The person asking the question is somewhat new to this side of the investment business, and was using the term "SMA" to represent, well, a separately managed account. Sadly, since the wrap fee industry adopted the term "SMA" to represent wrap accounts, confusion often arises; this isn't much different than when someone says "alpha," which can mean (a) excess return, (b) Jensen's alpha, and (c) other things, too! And so, one is forced to qualify what the speaker or writer means.

As I understand it, E.F. Hutton (you recall them, right? "When E.F. Hutton speaks ...") invented "wrap fee" accounts in the early/mid 1980s (an advisor I worked for in the mid 1980s considered introducing wrap fee accounts, too). These accounts "wrap" all the fees (commissions and other trading expenses, advisory fees, custodial fees, broker fees) together into a single fee (e.g., 2.00%; 2.50%), which the client pays. This way, the client doesn't worry about the advisor churning and burning them with lots of trades, which can turn into high commission expenses. My guess is that some in the industry felt that "wrap" didn't have quite the pizazz they wanted, and so the use of "SMA" began. It's probably too bad that no one said "sorry, that term is already in use; pick something else!"

Consequently, when we hear someone say "SMA" or even "separately managed account, qualification is in order. We should try to avoid reusing words and expressions, as this practice often leads to confusion.