APAC: Managed Accounts and Conflicts—Part 4: Separate Managed Accounts vs Funds-of-One
In our last post, we highlighted a key difference between separate managed accounts (SMA) and funds-of-one. By virtue of a power of attorney granting authority to a fund manager to trade assets of an account, the account owner can terminate the power of attorney (POA) at any time, with little recourse left to the fund manager other than hoping to recoup start-up expenses incurred in establishing the SMA. This is so even though the investment management agreement governing the SMA may have specified a very different set of termination rights and obligations. As between the POA and the investment management agreement, the POA is given greater weight on the basis that general principles of fiduciary duty would not generally permit a fund manager to compel an investor to have an advisory relationship with the fund manager
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