The Fixed Income SMA Revolution: Why Tax Optimization Is Reshaping a $15.8 Trillion Managed Account Industry

Executive Summary

The Landscape

The fixed income SMA market is rapidly expanding within the $15.8 trillion managed accounts industry, with SMAs and UMAs leading flows, and tax optimization emerging as the central competitive battleground.¹ Manager‑traded fixed income SMAs dominate municipal and taxable strategies, enabling real-time execution and customization that pooled vehicles and model-delivered approaches cannot match.

In the massive – and growing – fixed income market, automation has helped to lower SMA minimums and allowed leading managers to oversee hundreds of billions across thousands of personalized accounts. The industry is moving toward a unified managed household vision, emphasizing asset location, multi-account rebalancing, and holistic tax management for affluent clients.

The Problem

Traditional mutual funds, ETFs, and legacy systems struggle to deliver security-level customization, continuous tax-loss harvesting, and transparent reporting at scale. Building proprietary fixed income SMA technology is costly, slow, and vulnerable to accumulating technical debt, leaving many firms unable to meet rising advisor and client expectations for tax-efficient personalization.

The Solution

We believe purpose-built fixed income SMA platforms are the answer, enabling systematic tax optimization, customization, and efficient trading in a single workflow. This dovetails with IMTC’s cloud-native platform, which powers some of the industry’s largest fixed income SMA franchises, helping managers scale capacity, deepen customization, and fully participate in the fixed income SMA revolution.

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The Numbers Tell the Story

How separately managed accounts are transforming fixed income investing through personalization, tax efficiency, and technological innovation

The managed accounts industry just hit another milestone. According to the Q3 2025 Advisory Solutions Quarterly report from the Money Management Institute and Cerulli Associates, total industry assets reached $15.8 trillion—a 6.9% increase from the prior quarter.¹ But behind that headline number lies a more significant story: fixed income separately managed accounts (SMAs) are experiencing a renaissance that’s fundamentally changing how advisors and investors approach bond portfolios.

This growth is occurring against the backdrop of a massive U.S. fixed income market. According to SIFMA, total U.S. fixed income securities outstanding reached $48.9 trillion in Q3 2025, up 5.6% year-over-year ² with municipal bond issuance alone increasing 13% in 2025 to $580.4 billion.³ The sheer scale of these markets creates both opportunity and complexity for investors seeking personalized fixed income solutions.

Industry growth metrics and competitive dynamics

The growth in managed accounts isn’t happening evenly across all program types. The MMI-Cerulli data reveals that separate accounts and unified managed accounts (UMAs) are leading the charge, with SMAs collecting $96.9bn in 3Q25 and UMAs bringing in $95.1bn.¹

This represents significant quarter-over-quarter growth, with net SMA flows increasing 49.3% and UMA flows rising 38.7% from Q2 2025. ¹

What’s driving this? The report identifies tax optimization as the industry’s new battleground. As platforms seek differentiation from competitors, tax optimization tools have become a focal point of development efforts. Platforms that can’t make significant headway in these efforts risk reduced inflows and advisor attrition. Asset managers are responding to this demand as 60% are now looking to build manager-traded SMAs, a dramatic increase from just 23% in 2023.¹ This emphasis on personalization is accelerating, with 60% of asset managers now prioritizing their ability to offer personalized investment strategies in 2025, up from 50% in 2023.¹ This surge reflects growing recognition that maintaining trading responsibilities allows managers to differentiate their offerings through customization and tax management capabilities.

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Fixed income is a particular area of focus, with 40% of asset managers prioritizing the development of customized fixed income solutions, citing the ability to tailor bond ladders based on credit quality, duration, and other client-specific factors.¹ Within fixed income specifically, municipal and taxable fixed income SMAs remain predominantly manager-traded, meaning the asset manager executes trades directly rather than delivering model portfolios for sponsors to implement. This stands in stark contrast to equity strategies, which have increasingly shifted toward model-delivered approaches.

The distinction matters. Manager-traded accounts enable the precise, real-time tax optimization and customization that fixed income investors demand; these capabilities are particularly valuable given the fragmented nature of bond markets and the complexity of fixed income execution. This structure also reduces the operational burden on sponsors, who would otherwise need to build out internal trading teams capable of navigating the more complex fixed income trading environment.

Why Fixed Income SMAs Are Different

SMAs offer benefits including tax harvesting, customization, and transparency

The structural advantages of SMAs are particularly pronounced in fixed income. Unlike mutual funds or ETFs, SMAs offer direct ownership of individual bonds, enabling customizations that simply aren’t possible in pooled vehicles.

• Tax-Loss Harvesting Year-Round: The volatile rate environment of 2025 has bolstered proactive tax management. Municipal bond yields swung dramatically from 3.27% at the start of the year to 4.24% by mid-April, then back down to around 3.29% by late October.⁴ Each of these movements created tax-loss harvesting opportunities that evaporated as quickly as they appeared.
  Managers with sophisticated, systematic approaches captured these windows. AB reports harvesting over $8 billion in par value through their municipal SMA platform in 2025, generating tax alpha of 25-50 basis points for clients through October.⁴ Parametric similarly executed more than $13.4 billion in market value trades in 2025, realizing $362 million in net losses, and therefore, translating to over $122 million in potential tax benefits for investors.⁵
• Customization at the Security Level: Unlike mutual funds or ETFs, SMAs allow for security-level customization. A client concerned about credit exposure to a particular state, issuer, or sector can have those securities excluded. An investor with concentrated stock holdings can avoid duplicating that exposure. Someone with specific income needs can have their portfolio tilted toward higher-yielding securities while maintaining appropriate risk parameters.
• Transparency and Control: Direct ownership of securities provides complete visibility into holdings—no more wondering what’s inside a fund. Investors see every position, every trade, and every realized gain or loss. This transparency extends to costs: SMA fee structures are typically more straightforward than the layered expenses of fund-based solutions.

The Technology Factor

The democratization of SMAs is made possible through automation

The explosion in fixed income SMAs wouldn’t be possible without significant technological advances. Account minimums have fallen dramatically — from the hundreds of thousands required a decade ago to as low as $100,000 at some platforms.⁶ This democratization is driven by automation, digitization, and workflow improvements that have made institutional-quality strategies accessible to a much broader investor base.

The largest asset managers now oversee hundreds of billions in SMA assets, with their fixed income platforms offering tailored approaches for each client based on state of residence, tax liability, credit exposure, risk tolerance, income needs, and other specifications. The Cerulli data shows the top managers in manager-traded SMAs are scaling rapidly to meet advisor demand.

What’s enabling this scale? Whether built in-house or leveraged through outsourced SaaS platforms like IMTC, sophisticated portfolio management engines systematically screen portfolios for tax optimization opportunities tailored to each client’s specific situation. These systems can evaluate thousands of tax lots, assess transaction costs against potential tax benefits, and execute trades that balance tax efficiency against maintaining target exposures. For many firms, partnering with specialized technology providers offers a faster path to market than building proprietary solutions from scratch.

The economics of building these systems in-house are daunting. Development costs run into the millions, requiring specialized engineering talent that commands premium compensation in today’s market. But the initial build is just the beginning. Technical debt accumulates rapidly as teams patch systems to address bugs, regulatory changes, and evolving client requirements. Most proprietary platforms require constant maintenance and frequent updates just to remain functional, and we frequently hear that firms face a complete system rewrite every five years as underlying technologies become obsolete and accumulated patches create unsustainable complexity. For asset managers whose core competency is investment management rather than software development, these ongoing technology burdens can become a significant drag on resources and profitability.

What This Means for the Industry

Competitive implications and value creation

The shift toward fixed income SMAs represents more than just product evolution. It signals a fundamental change in how the industry thinks about value creation. At the same time, 28% of asset managers cite protecting their distribution opportunities as a top priority as sponsors rationalize the products they offer, up from 23% in 2023.¹ Distribution economics are also shifting, with 12% of managers now grappling with how to respond to revenue sharing requests from distributors, up from 8% in 2023.¹ Managers who cannot demonstrate clear differentiation risk losing shelf space as platforms streamline their offerings.

Traditional asset management has focused on generating returns through security selection and market timing. But for taxable investors, the math increasingly favors after-tax returns over pre-tax performance. A manager generating 0.3% of tax alpha through systematic loss harvesting can meaningfully compound wealth over time, especially when combined with customization that aligns portfolios with individual circumstances.⁷

The competitive implications are significant. Asset managers are launching SMAs at an unprecedented pace, anticipating high demand from financial advisors. Advisors are increasingly preferring to maintain the same manager and strategies, while having the flexibility to choose the vehicle that best suits their clients’ goals and needs.

Cerulli’s research reveals that fixed income SMAs maintain a redemption rate of just 15.9%, significantly lower than comparable mutual funds. In Cerulli’s survey, 67% of asset managers confirmed that fixed income SMA redemption rates were lower than mutual funds, with 77% reporting the same advantage for equity SMAs (21.1% redemption rate).⁸ The five-year average holding period for SMAs represents a substantial improvement over fixed income mutual funds, which according to DALBAR averaged just 2.12 years.⁹ While SMA holding periods are shorter than the 10-20 years managers originally anticipated, they still represent a meaningful retention advantage over traditional pooled vehicles, demonstrating how direct ownership and tax management capabilities foster stronger investor commitment.

What drives this stickiness? The SMA model creates natural alignment between investor behavior and long-term outcomes. Direct security ownership fosters deeper engagement. Investors who can see individual holdings, understand tax-loss harvesting activity, and track customized portfolios develop stronger conviction in their investment approach. The deliberate onboarding process attracts investors with clearer objectives and longer time horizons. And perhaps most importantly, the tax management capabilities inherent to SMAs create tangible, compounding value that becomes increasingly difficult to walk away from over time.

The operational complexity that some view as a friction point actually serves as a feature rather than a bug. Liquidating an SMA portfolio of 100 to 300 individual securities requires more deliberate decision-making than clicking “sell” on a mutual fund position, giving advisors valuable time to counsel clients through market volatility rather than reacting to emotional impulses. This built-in pause has proven particularly valuable during recent periods of market stress, when mutual funds have experienced sharp redemption spikes while SMA outflows remained comparatively muted.

For asset managers and wealth platforms, these retention advantages translate directly to economics. Lower redemption rates mean reduced trading costs, more efficient tax management, and longer fee-generating relationships.

As technology continues to lower SMA minimums and streamline operations, the investor base will inevitably broaden. Yet the fundamental structural advantages, including direct ownership, tax efficiency, customization, and the behavioral benefits of transparency, should continue to differentiate SMAs from pooled alternatives. The redemption data, rather than raising concerns, actually confirms that investors who experience the SMA model tend to stay longer and remain more committed to their long-term financial plans.

This creates both challenge and opportunity. Managers who can demonstrate consistent tax alpha and responsive customization will build stickier client relationships. Those who treat SMAs as repackaged mutual funds risk the same redemption patterns that have plagued traditional fixed income products. This reflects a major pain point for fixed income managers: investors often treat the fixed income sleeve of their portfolio like a quasi-checking account.

The opportunity extends beyond assets already in professionally managed structures. Rep-as-portfolio-manager (RPM) programs, where advisors maintain discretion over client portfolios, represent $4.0 trillion in assets and grew 8.1% in Q3 2025 alone, making it one of the fastest-growing segments of the managed accounts industry.¹ The portion of this AUM that sits in fixed income allocations is often managed manually by advisors without the systematic tax optimization or customization capabilities that dedicated SMA platforms provide. Converting even a fraction of these advisor-managed fixed income holdings to manager-traded SMAs could unlock significant value for both advisors and clients. Advisors reclaim hours spent sifting through Excel spreadsheets focusing on bond selection, trade execution, and tax lot monitoring, while clients gain access to institutional-grade tax-loss harvesting and security-level customization. For advisors juggling dozens or hundreds of accounts, the time savings alone can be transformative, allowing them to redirect focus toward client relationships and financial planning rather than managing individual bond positions across fragmented portfolios.

The Road Ahead

Technology infrastructure requirements

The fixed income SMA opportunity is substantial though capturing it requires significant infrastructure investment. Firms need systems that can handle the complexity of individual tax lots across thousands of accounts, execute tax-optimized trades while aligning to target portfolio characteristics, and provide the transparency and reporting that advisors and clients expect while seamlessly integrating into existing technology stacks.

As the MMI-Cerulli report concludes, platforms that cannot make significant headway on tax optimization face the risk of eroding satisfaction and loyalty from both advisors and clients. The firms that have invested in technology infrastructure, whether proprietary or through partnerships with specialized platforms, are positioned to capture disproportionate share.

Within fixed income specifically, the momentum is even more pronounced. Taxable fixed income SMAs accounted for 19% of wirehouse net sales in 2024 despite representing only 10% of SMA assets under management, signaling accelerating demand.¹⁰

The competitive dynamics create a widening gap between technology leaders and laggards. Advisors increasingly view tax management as table stakes rather than a differentiator: 69% of affluent investors say it is important that their provider helps them reduce their tax bill, and 78% want their accounts customized to their specific situation.¹¹ For advisors serving high net worth clients with $5 million or more in investable assets, tax minimization ranks as the number one financial need. Platforms that cannot deliver on this expectation risk losing advisors to competitors that can.

The competitive pressure from passive strategies is also intensifying, with 24% of managers now focused on positioning their products against passively managed vehicles, up from just 15% in 2023.¹ Yet this is precisely where fixed income SMAs hold a decisive edge. Passive bond ETFs and index funds cannot harvest losses at the individual tax lot level, cannot exclude specific issuers or sectors based on client preferences, and cannot provide the transparent, security-by-security reporting that high-net-worth clients increasingly expect. For investors utilizing a well-managed SMA, the personalization and value delivered often exceed the perception of the fee savings versus a passive alternative. The value proposition becomes even clearer when advisors can point to specific positioning established, transparency and tax savings generated for each client, turning an abstract fee conversation into a concrete demonstration of value delivered.

The market share implications extend beyond individual account relationships. As Cerulli notes, 82% of managed account sponsors identify improving tax management capabilities as a top three priority for their firm.¹¹ This investment is not discretionary; it is a competitive necessity. Sponsors recognize that tax savings provide a tangible story advisors can use to demonstrate value and justify fees, making tax optimization capabilities a powerful tool for advisor recruitment and retention. In an environment where advisor mobility represents an increasing threat to sponsor firms, platforms with superior tax technology gain a meaningful edge in keeping their advisor base intact.

The bifurcation is already visible in flow data. Direct indexing assets, which depend heavily on sophisticated tax management technology, are projected to grow at a compound annual growth rate of 12.3% through 2026.¹² Custom index SMAs accounted for 28% of SMA net sales in 2024 while representing just 9% of SMA assets, illustrating how quickly market share can shift when platforms deliver capabilities advisors value.¹⁰ Firms capturing this growth have made substantial investments in technology infrastructure, and the returns on that investment are compounding as advisor adoption accelerates.

For asset managers and platform sponsors, the strategic imperative is clear. Those that have built or partnered for comprehensive tax optimization capabilities, spanning client onboarding through retirement distributions, are positioned to capture outsized market share as the market continues its migration toward personalization. Those still relying on manual processes or piecemeal solutions face an increasingly difficult competitive environment as advisor and client expectations continue to rise

Future-Proofing Your Fixed Income Business with IMTC

Client success stories and platform capabilities

The trends driving the fixed income SMA revolution—tax optimization, customization at scale, and operational efficiency—all depend on one critical factor: technology infrastructure. Firms that still rely on legacy systems and spreadsheets to manage bond portfolios simply cannot deliver the personalization clients demand while achieving scalable profit.

This is where IMTC comes in. As the industry-leading fixed income technology platform, IMTC empowers asset and wealth managers to generate ideas, construct portfolios, and execute trades in one seamless workflow—automating the manual processes that have historically made SMA management labor-intensive and error-prone.

IMTC works with several of the world’s largest fixed income managers who are capitalizing on the SMA opportunity:

• SEI, one of the nation’s largest investment managers with over $1.8 trillion in assets, was an early adopter in recognizing the strategic importance of modernizing their fixed income infrastructure. Sean Simko, Head of Fixed Income Portfolio Management at SEI, put it simply: “In the current economic landscape, separately managed accounts are a critical component of fixed income investing. IMTC enables us to not only meet but exceed our clients’ goals.” The platform was implemented in less than five months, demonstrating IMTC’s cloud-native architecture advantage.
• Franklin Templeton, who manages $1.68 trillion in assets, partnered with IMTC in early 2025 to enhance customization and automation within their fixed income SMA business. Michael Salm, SVP Fixed Income at Franklin Templeton, explained: “Over the next few years, we anticipate significant growth in the SMA space and we’re excited to scale operations to fully capitalize on this promising opportunity.” The firm is leveraging IMTC’s end-to-end platform for optimization, allocation, investment compliance, and order management.
• T. Rowe Price, managing over $1.78 trillion in assets, selected IMTC to power the launch of their new fixed income SMA offering. Mike Benedetto, Head of SMAs at T. Rowe Price, highlighted the significance: “We believe that innovations like those from IMTC are set to redefine SMA management and deliver better outcomes for clients.”
• Lord Abbett, with approximately $244 billion under management, chose IMTC to optimize operations for their taxable fixed income SMA business. CEO Douglas Sieg noted: “This technology enables us to deliver an exceptional experience by enhancing our fixed income portfolio solutions and harnessing the power of technology.”

These partnerships share a common thread: industry leaders recognizing that the SMA opportunity requires purpose-built technology. IMTC’s clients report up to a 90% increase in their capability to manage thousands of accounts and the ability to double trading volumes without adding headcount.

The questions every fixed income firm should be asking: Is your platform ready to deliver transformative fixed income solutions and tax optimization? Are you leveraging the newest technology to manage portfolios efficiently at scale? Can you deliver customized fixed income solutions without putting undue strain on your organization?

As the MMI-Cerulli data makes clear, platforms that fall behind on tax optimization and personalization risk losing both assets and advisors to more capable competitors. The firms that are winning are the ones investing now in the technological infrastructure to capture this generational opportunity and they are doing it at speeds that internally built systems cannot keep pace without substantial technology operations support and spend. Managers must ask themselves whether they are in the business of investment management or are they a technology company.

The fixed income SMA revolution isn’t coming. It’s here. The only question is whether your firm is positioned to lead it. IMTC is the industry-leading technology provider for firms looking to transform and launch fixed income SMAs. If you are thinking about your strategy, please reach out to the team for a consultation.

Sources:

1. MMI-Cerulli: Advisory Solutions Quarterly Report Q3 2025.
2. SIFMA: U.S. Fixed Income Securities Statistics 2025.
3. SIFMA: US Municipal Bonds Statistics 2025.
4. AllianceBernstein: Lessons on the Value of Proactive Tax Management in Muni SMAs 2025.
5. Parametric Portfolio Associates: Fixed Income Tax Loss Harvesting: Unlock Value in Volatile Markets 2026.
6. Bloomberg: Wall Street Is Selling Custom-Made Portfolios to the Masses 2024.
7. Andrew Kalotay – Financial Analysts Journal: Tax-Efficient Trading of Municipal Bonds 2016.  
8. Cerulli Associates: The Cerulli Edge—U.S. Managed Accounts Edition Q3 2025.
9. DALBAR: Quantitative Analysis of Investor Behavior (QAIB) – 2024.
10. BNY Growth Dynamics: Distribution Pulse Quarterly Q1 2025.
11. Cerulli Associates: Customized at Scale. October 2025.
12. Cerulli Associates: The Case for Direct Indexing: Differentiation in a Competitive Marketplace 2022.
    
    
    
    

This paper is intended for information and discussion purposes only. The information contained in this publication is derived from data obtained from sources believed by IMTC to be reliable and is given in good faith, but no guarantees are made by IMTC with regard to the accuracy, completeness, or suitability of the information presented. Nothing within this paper should be relied upon as investment advice, and nothing within shall confer rights or remedies upon, you or any of your employees, creditors, holders of securities or other equity holders or any other person. Any opinions expressed reflect the current judgment of the authors of this paper and do not necessarily represent the opinion of IMTC. IMTC expressly disclaims all representations and warranties, express, implied, statutory or otherwise, whatsoever, including, but not limited to: (i) warranties of merchantability, fitness for a particular purpose, suitability, usage, title, or noninfringement; (ii) that the contents of this white paper are free from error; and (iii) that such contents will not infringe third-party rights. The information contained within this paper is the intellectual property of IMTC and any further dissemination of this paper should attribute rights to IMTC and include this disclaimer.