SMA Drawbacks and Advantage

CFA Level III Portfolio Management
#1

Which of the following statements regarding differences in separately managed accounts (SMAs) and pooled investments is accurate?
A) A customized SMA can help minimize tracking error relative to a benchmark.
B) Pooled investments have higher transaction costs compared to SMAs but can
benefit from customization.
C) The incremental cost of adding additional investors is relatively low for pooled
investments.

C option is correct, but I believe A is also right because for SMA comparison, I will go for customized benchmark, otherwise it is not an appropriate benchmark.

#2

IMHO you are overthinking it. The question assumes same benchmarks and same portfolios, but focuses on vechicles. Customization will add constraints, SMA will lessen diversification, as your portfolio is less than your portfolio combined with the assets of other participants in pooled funds and mostly add higher % of management fees. Thus the tracking error would be higher.