What Is a "Separate Account" with a Money Manager?
Separate accounts differ from traditional funds because you, the investor, will own the securities yourself, rather than having a share in a big investment pool. Say the XYZ Fund has big stakes in Coca-Cola and PepsiCo, and you believe after a taste-test that Coke is finally going to wipe out Pepsi.
In reality, money managers probably don't want that kind of input from customers, but the point is that the portfolio is customized to you, rather than to a mass of somewhat like-minded shareholders.
Separately Managed Accounts Offer:
- Direct ownership of individual securities such as stocks and bonds.
- The ability to eliminate certain types of securities -- think tobacco stocks or companies that pollute -- based on the investor's preferences.
- Tax-management strategies, including tax-loss harvesting and offsetting of gains. Unlike mutual funds, separate accounts offer individual tax lots, meaning you're not going to suffer the tariff on someone else's gains when you buy in.
- Monitoring of the individual investor's other securities, which may be able to be transferred into the separate account.
As a general rule, separate accounts require a minimum initial investment of $100,000 or more, but there are now some brokers and planners looking to get into the business by accept small accounts, so that you may be offered the service by someone trying to build a practice and willing to oversee your $25,000 or $50,000 account.
By Chuck Jaffe