Individually Managed Accounts are equivalent in many ways to private wealth advisors. Whether you refer to them as “separately managed accounts” or “individually managed accounts”, they have become a well-accepted means of having a professional trade the market for you.

Separate managed accounts became an accepted form of investment 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, individually managed accounts. (These are not to be confused with traditional wrap programs or accounts that cater specifically to mutual funds).

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 individuals.

While mutual funds somewhat met this need they do not allow for customized portfolios as individually managed accounts do. Lately money management firms have been able to lower minimums from $1M to $100k or even $25k. But individually managed accounts, especially in forex, sometimes allow minimums as low as $1,000.

Don’t Micro-Manage

Individually managed accounts are similar to mutual funds as money managers adhere to specific strategies and/or asset classes in trading. The fundamental difference with separate accounts is that the money manager is trading for each client’s specific account and not a “fund.” When you buy into a mutual fund you own the mutual fund not the underlying securities. When you open an individually managed account you actually own the account itself. The manager has no access to your funds, although he or she can make trades on your behalf. You should always keep in mind the reason you are having your account traded by a professional. It would be a waste of your time and the money manager if you micro-manage their choices or portfolio in general but sometimes making changes can make a lot of sense. It is also distracting to them and can upset their “balance.” That is the last thing you want.

Individually Managed Accounts and Diversification

You can benefit from individually managed accounts by customizing the sector or industry security purchases by the money manager on your behalf. Say for example that you are working for GM 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 GM, Ford, or Chrysler that could move in tandem with your naturally oversized position in GM. 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.

Transparency

Individually Managed Accounts provide a high level of transparency. They let you see movements and trades in your account, view your account balance at all times, view performance against relevant benchmarks, and receive market commentaries from the manager.

Other valued benefits included visibility of fees, visibility of holdings, the ability to manage taxes effectively, better communication, superior performance reporting.

While investing in individually managed accounts you can either invest in a single program, or a selection of individual programs, whether under one manager or more. With that said, there is no simple subscription to the consumer’s digest of the overall best investment or investment plan. At The Review we try to help with our published data and articles. But in the end, each investment product or service has different return characteristics and different risk characteristics, and when combined with other investments, may enhance or inhibit your probability of achieving your goals.

Individually Managed Accounts: Additional Benefits

Individually Managed Accounts are:

• Cost Efficient
• Tax Efficient
• Transparent
• Portable
• Flexible

Listen to Your Advisor

To maximize the benefits individually managed accounts, most investors work with a professional investment advisor. We encourage this practice. Your advisor provides assistance with asset-allocation decisions, money-manager selection, as well as coordination of portfolio customization and gain/loss harvesting.