Financial Literacy

The Truth About Managed Accounts

The Truth About Managed Accounts

by Alexander Green, Chairman, Investment U
Investment Director
Monday, April 21, 2008: Issue #786

At a recent investment conference, I was asked a question that I hear pretty frequently. “Just what are managed accounts – and do you recommend them?”

Whether an investor would benefit from having a managed account or not is a personal question, really. I’m no longer a money manager. And, as an editor, I don’t give personal investment advice.

Traditionally, institutional investors used a money manager to run a portion of the institution’s money and make all the investment decisions. Until recently, individual investors could only get access to these managers if they had millions of dollars to invest.

But in recent years, the minimum investment requirements – and, just as importantly, costs – have come way down.

When you open a managed account, it means you have signed a limited power of attorney to let an investment professional run your portfolio or some portion of it. Generally speaking, the manager will begin by determining your investment goals, time horizon and risk tolerance. A 70-year-old widow’s portfolio, for example, may look very different than a 25-year old couple’s.

But I can tell you that managed accounts have both advantages and drawbacks. Let’s take a look at both…

The Benefits of a Managed Account

Here are the benefits of a professionally managed account:

  • Custom asset allocation. The portfolio is based on your personal investment goals, not a general strategy like “growth” or “income.”
  • Transparency. Unlike mutual funds, you know what’s in your account. You can see what you own.
  • Tax management. Your portfolio can be run so that annual state or federal taxes are minimized.
  • Competitive fees. Account managers generally charge a flat annual fee rather than full-service brokerage commissions.
  • Performance. Managed accounts often offer the services of top money managers using investment systems with favorable track records.
  • Convenience. If you are too busy to give your investments the attention they deserve – or if you are an inexperienced or emotional investor – having a professional run your portfolio may be your best solution.

The Disadvantages of Managed Accounts

Of course, managed accounts have disadvantages too.

  • For starters, there are all kinds of money managers: good, bad and mediocre. Clearly, it’s not worth paying for anything less than the best manager you can find.
  • Then there is the matter of costs. Managed accounts are generally cheaper than using a full-service broker in a transaction-based relationship. Still, no one can manage your money more inexpensively than you can on your own.
  • Managed accounts are generally not for do-it-yourselfers. If you enjoy the investment process, have the time and expertise to implement your own investment strategy, and are satisfied with your results, you don’t need to turn your money over to someone else to manage.

I recently spoke with Greg Galloway, President of Fund Advisors in Orlando, FL, who runs some managed accounts based in part on our asset allocation and investment recommendations. I asked him to address the drawbacks I just mentioned.

Managed Accounts Aren’t For Everybody…

“Look,” he said with a laugh, “I’ll be the first to concede that managed accounts aren’t for everybody. However, I speak to a lot of investors who realize they could be doing a lot better than they are. They know they should asset allocate their portfolios, but they don’t. Or they aren’t sure how. They don’t want to be over- or under-diversified, but we look at their portfolios and see that they are.

They know they should run trailing stops behind their stocks, but they get distracted or forget. Many of these people are smart, sophisticated investors, incidentally. They’re just too busy running a company, taking care of their families or pursuing their interests to give their portfolios the attention they deserve.”

How about investors who say they can save money by managing their own accounts individually?

“You may be able to do it more cheaply on your own,” says Greg. “But, remember, the most important question is not ‘what are my costs?’ It’s ‘Am I satisfied with my investment returns net of whatever fees I’m paying?’ If the job isn’t getting done, you may want some help.”

In the end, whether or not you need to consider a managed account really boils down to whether or not you prefer to grow your own tomatoes. Stick with me a moment…

Some people are natural gardeners. They want to till the soil, plant the seeds, water them, fertilize them, weed them and, eventually, harvest them. When they eat those tomatoes, they have the pride and satisfaction of knowing they raised them themselves.

Other folks are uninterested, unqualified, or too busy to grow their own tomatoes. They stop at the Farmer’s Market on the way home and just pick up a bag.

In the end, the choice is yours…

Learning More About Managed Accounts

If you’d like to learn more about managed accounts, here are some good places to start:

  • Greg Galloway and Rick Pfeifer of Fund Advisors run managed accounts through Charles Schwab, using Oxford Club recommendations among other strategies. They also offer a complimentary portfolio review. (Minimum account size is $100,000.) Rick and Greg can be reached at 800.438.3040 or 407.667.4729.
  • Brent Amey, an investment advisor with CIBC Wood Gundy in Barrie, Ontario, offers similar services for Canadians. Brent is also an estate planner. He can be reached at 800.461.5416 or 705.720.1406.
  • If you’re interested in commodities, you may want to speak to Jay DeBradley at Rutsen Meier Belmont (RMB) Group. Jay specializes in alternative assets, including options and foreign currencies. He can be reached at 888.281.9570 or 312.528.3433.
  • If your interest is gold and other precious metals, you may want to talk to the folks at Asset Strategies International. They focus on currencies, precious metals and offshore accounts. Contact Michael or Rich Checkan at 800.831.0007 or 301.881.8600.

In sum, managed accounts are an excellent choice for some investors. Others may well decide to give them a pass.

But it never hurts to know your alternatives.

Good investing,


Today’s Investment U Crib Sheet

For those of you who are comfortable managing your own accounts, here are three resources you can put to work right away. They’re free…

  • Calculating Personal ROI: Friday, Alex suggested figuring out “your number.” Here’s an easy way to determine what investments will get you there, based on how much money you have right now. This calculator will virtually guarantee you’ll never run out of money.
  • How to Build Wealth: Employ these four “Pillars of Wealth” – the foundation of our investment philosophy – to build a substantial nest egg. To be sure, mastering the fundamentals of profitable stock investing will do more for your total return than any fad or “hot tip.”
  • Investment U’s Retirement Planning Zone: Go here to find seven “extreme catch-up” plans, including a “bull note” worth 42%… with no risk. Whether you’re in retirement now, just starting to plan, or want to get there faster, these “off Wall Street” ideas can help.


An expert on momentum investing, value investing and investing based on insider activity, Alex worked as an investment advisor, research analyst and portfolio manager on Wall Street for 16 years. He now runs the wildly successful Oxford Communiqué, ranked as one of the top investment newsletters by Hulbert Digest for more than a decade. He is also the author of four national best-sellers: The Gone Fishin’ Portfolio, The Secret of Shelter Island, Beyond Wealth and An Embarrassment of Riches. He shares his wisdom in his free daily e-letter, Liberty Through Wealth.

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