While mutual funds and exchange-traded funds offer convenience, they have drawbacks, including lack of customization and transparency. And some are downright tax-inefficient. Investors who crave a more personalized approach but still want professional management might want to consider separately managed accounts.

"Mutual funds are great, but you could say the same about penicillin," said certified financial planner Jim Lorenzen of The Independent Financial Group. "It's a miracle drug, but some people are allergic."

Separately managed accounts are private portfolios overseen by professional money managers. Though an SMA manager may manage money for a large number of investors, unlike a mutual funds, the funds are not commingled. That allows investors to closely monitor their individual portfolios and exercise control over the types of securities their manager buys.

Since 2013, assets in SMAs have grown steadily, reports research firm Cerulli Associates. At the end of 2016, there was $4.6 trillion invested in SMAs, $61.7 billion more than the year before.

"A client is getting institutional level service at a retail level," said Fatima Iqbal, financial planner and senior investment strategist with Azzad Asset Management.

Azzad's clients are mostly Muslims who want to exclude the types of businesses that Islam prohibits, such as those that make a profit from tobacco, gambling or pornography. The firm has two mutual funds — a large cap blend offering and a bond fund — that do this kind of screening. But other strategies such as small cap growth and international are not available in the mutual fund format. To achieve diversification, Azzad uses the separately managed accounts to find appropriate investments in the different investment styles.

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Similarly, Sheryl Rowling, a CPA and CFP and founder of Rowling & Associates, has used SMAs in the past when clients insist on socially responsible investments.

"Each investor is going to have a different definition of what they view as a socially conscious investment," Rowling said. "You might have one investor that doesn't want to invest in tobacco stocks or military stocks, and then you might have another that wants to invest according to religious values."

Likewise, SMAs are useful for clients who have large positions in company stock. SMA managers can avoid duplication of that stock, or even sector, to ensure diversification. But mutual funds, even those dedicated to a particular strategy or sector, aren't able to accommodate the unique investment needs of an individual investor.