Think of a Separately Managed Account or privately managed account as your own personal mutual fund. You tell the money manager your needs, and he or she builds a portfolio for you and makes trades at his or her discretion. The hope is you’ll get higher returns and more customized service than with a mutual fund. Separately managed accounts have been around for 30 years, but Wall Street has been promoting them recently as part of its move away from transaction-based commissions and toward fees based on assets under management.
As a result, although they have a small space in the investing universe, the accounts are growing in popularity. Minimum investments are usually $100,000. Typically, the investor has more control on capital gains tax issues than in a mutual fund. Separately Managed Account Managers can buy when the herd is selling and vice versa.
Benefits:
Customizable
A separate account manager can offer customization taking into account the existing securities in an investor’s portfolio, or excluding certain industries that the investor finds objectionable.
Tax Efficient
Because the investor controls the cost basis of a separately managed account, the manager can pursue a range of tax management strategies to address their specific tax considerations.
Transparent
Separately managed accounts are transparent, meaning that the investor has complete knowledge of every security held in the portfolio.