Separate Managed Account

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Professional money managers have traditionally only been available to those investors with over $1M for a minimum investment. The explosion of managed accounts is due to the access it provides to money managers who usually only serve pension, endowments, and hnw or uhnw individuals. (1)

While mutual funds somewhat met this need they do not allow for customized portfolios of securities as separate managed accounts do. Lately money management firms have been able to lower minimums from $1M to $100k or even $25k. Separately managed accounts allow you to have an individual cost basis on the securities in your portfolio. A cost basis as defined by Investopedia is the “original value of an asset for tax purposes (usually the purchase price), adjusted for stock splits, dividends and return of capital distributions. This value is used to determine the capital gain, which is equal to the difference between the asset's cost basis and the current market value. Also known as "tax basis.” (1)

Separate Accounts are similar to mutual funds as money managers stick to specific strategies and/or asset classes in purchasing securities. The fundamental difference with separate accounts is that the money manager is buying securities for each clients specific account and not the fund itself. When you buy into a mutual fund you own the mutual fund not the underlying securities. When you buy a separate managed account product you actually own the underlying securities that the money manager has bought on your behalf. You can request that the money manager customizes your portfolio to your liking. It would be a waste of your time and the money manager’s if you micro-manage their choices or portfolio in general but sometimes making changes can make a lot of sense. (1)

Being able to manage your individual cost basis or the tax liability timing of the securities in your separate managed account can help you avoid paying realized capital gains taxes. For example a high net worth individual might sell a piece of real estate for a large profit while also selling an individual security in their separate account to offset the tax consequences of that gain. This could not be done with a mutual fund unless you were selling the whole mutual fund at a loss. (1)

Mutual fund contain embedded capital gains. These are capital gains taxes the mutual fund itself must pay and the cot of them are spread out across all investor in the fund regardless of when you invested your funds. You could invest in a mutual fund in December and instantly feel the pain of the embedded capital gains tax on the value of the fund. While using managed accounts there are no embedded capital gains taxes because you are just coming into ownership of the securities and they are being chosen for you by the money manager. You will only be liable for capital gains taxes for securities in the same fashion as if you were purchasing the securities through your own E-Trade or Charles Schwab account. (1)

Another way that you can benefit from managed accounts is by customizing the sector or industry security purchases by the money manager on your behalf. Say for example that you are working for Intel and you receive thousands of options every year as part of your compensation. It might not make sense for you to be purchasing securities such as Intel, Cisco Systems, or AMD that could move in tandem with your naturally oversized position in Intel through the options you are receiving. Maybe working in the industry would make you want to invest even more in the industry but at least with managed accounts you have the choice to double up in that area of leave it completely. You cannot customize your portfolio in this way with mutual funds. (1)

Separate managed accounts were “invented” or first started to pick up steam in the 1970s. Many money managers oversee hundreds of separate managed accounts but hope to customize each as needed to an investor’s preference. Managed accounts are also referred to as wrap accounts, separate accounts, individually managed accounts, privately managed accounts, actively managed accounts, separately managed accounts. These are not to be confused with traditional wrap programs or accounts that cater specifically to mutual funds. (2)

“88% of all separately managed account investors describe themselves as “long-term” investors and 80% believe they are “knowledgeable” about investing.” (2)

here are 4 steps to successfully investing in separate managed accounts. These include:

1) Defining your Goals. Decide where you are headed and why by working with you financial advisor or consultant.

2) Determine your asset allocation. Numerous studies have shown that over 90% of returns can be attributed to asset allocation.

3) Select investment vehicles and/or money managers

4) Monitor and customize your portfolio (2)


“69% of all SMA investors surveyed believed that “the ability to meet or speak with the portfolio manager “ is a very important advantage offered by SMAs. Other valued benefits included visibility of fees, visibility of holdings, the ability to manage taxes effectively, better communication, superior performance reporting.” (2)

Separate managed accounts provide a high level of transparency. They let you see movements in securities in your portfolio, view your overall portfolio asset allocation weights, view performance against a relevant benchmark, and receive market commentary from the portfolio manager. (2)

While investing in separate managed accounts you can either invest in single manager managed accounts or multiple manager managed accounts. These multi-manager accounts are sometime referred to as unified managed accounts or model-based overlay portfolio management. If you are investing in several SMA managers sometimes a unified managed account can make sense because you can limit sector weights across all money managers so you don’t get over weighted in area that might be more volatile than you are comfortable with. (2)

“80 Percent of SMA Investors surveyed said they feel like they have control over their assets” (2)

Managed Accounts are:

  • Cost Efficient
  • Tax Efficient
  • Transparent
  • Portable
  • Flexible (3)

Managed accounts use intellectual property of professional money managers, benchmarks a client’s portfolio preferences against the fund managers portfolio, and blends models to provide a customized investment solution. Managed Account investment levels are on track to reach $2.6 Trillion by 2010 with over 5 million households using this type of investment portfolio. On top of the tax flexibility of managed accounts they have also grown in popularity because they can be customized for an investors risk profile, ethical preference, or other interests. (3)

Managed accounts are pools of securities managed by a money manager on a discretionary basis. Recent technological advancements have made managed accounts widely available to general investors at low fee levels and minimum investment levels of around $100,000. One advantage of using managed account is one all-inclusive fee. A single asset-based fee is charged to clients and sometimes this can be deductible off your federal income taxes. Another benefit is the peace of mind that a fee based account provides. You don’t get charged based on transactions or security divestments, you are only liable for one flat fee charged on a quarterly basis. (4)

For more information contact Richard Wilson at (503) 789-7901 or










For more information contact Richard Wilson at (503) 789-7901 or