Separately managed accounts (SMAs) have been touted as the Holy Grail of the investment industry-the wirehouses certainly bear witness to that premise. But what's the story for independent advisors?

Financial Research Corp. (FRC) found in its 2004 study, An Overview of the Separate Account Industry, that 30% of its independent advisory sampling incorporated separate accounts into their businesses. Further, SMA business constituted a mere 10% share of that sample's total. Compared with the wirehouses' 70% market share overall-not just within a sampling-separate account use by independent advisors appears paltry. Yet, industry experts cite the independent advisory market as the fastest-growing SMA market today.

Despite these statistics, independents are slowly but steadily increasing their use of SMAs. Their slow acceptance could be due to one or more of the following considerations:

Relative newness of the product to this segment.

Time required for advisors to properly educate themselves about SMAs.

Time and education required to learn the cons ulting process.

Complex operational and administrative requirements.

Requisite addition of staff and the budget needed.

Additional training of that staff.

Implementation of complex fiduciary activities, including conducting adequate due diligence in the manager search, selection and monitoring process.