If you have a significant sum ofmoney to invest (ie, over$100,000) you can take advantageof an investment vehicle thatwas once available only to thevery wealthy and institutional investors.The investment is a separatelymanaged account. It allows you to tapthe expertise of a large and experiencedmoney management firm whilestill investing through a portfolio thatis tailored to your unique needs.
A separately managed account isgenerally structured like a mutual fundin that it has a manager or team ofmanagers who pursue a specific investmentobjective. A firm may offer alarge-cap growth account which themanagers, on behalf of each individualphysician-investor, would invest inlarge companies that they believe willappreciate every year. Within thisframework, the separately managedaccount offers individual investors thefollowing unique benefits:
•Account Customization. In aseparately managed account you havesome say about what securities areowned in the portfolio. How muchinput you can provide will vary, aseach firm that offers these accountsoffers its own level of customization.You could exclude certain securitiesthat you may have in other portfoliosor have moral objections to. You mayalso incorporate securities you alreadyown in other accounts.
•Complete Control. In a separateaccount, the decisions of other investorswill not affect you because youindependently own each one of thesecurities in the portfolio.
•Greater Flexibility with Taxes.Pooled accounts such as mutual fundscan create some unwelcome tax consequences.For example, if you make apurchase just before a capital gain distribution,you could owe a tax on thedistribution even though you'veowned the security for a short time.You don't have to worry about thisproblem in a separately managedaccount. The account does not have tomake annual capital gain distributionsthe way mutual funds do. You willincur capital gains taxes only whenindividual securities are sold at a gain.You may also be able to ask the portfoliomanager to incur some capitallosses to offset taxable gains in otherareas of your investments.
•Asset-based Fees. With separatelymanaged accounts physician-investorspay an annual asset managementfee with the level of the fee determinedby the amount of assets in theaccount. The fee covers the cost of theexpertise delivered by a professionaladvisor and the investment team. Italso pays for the expenses associatedwith administering and servicing youraccount. Because the fee is a percentageof the assets of your account, allparties have the incentive to increasethe account value as much as possible.
•Extensive due diligence. Financialadvisors that offer separatelymanaged accounts to their clients makeextensive efforts to meet due diligencerequirements. Firms do extensive researchon portfolio managers beforeadmitting its particular portfolio intotheir portfolio of separately managedaccounts. Advisors consistently monitorthe performance of the separately managedaccounts to make sure that theyare meeting client investment objectives.
•Insightful Updates. Separate accountstypically provide quarterlyupdates to show all activity in theaccount and the performance of theaccount in relation to a benchmark.These updates include additional informationsuch as market outlooks,commentary from the portfolio managerand a statement of the tax liabilitiesthe account owner incurred duringthe quarter.
William J. Connington III is a wealth advisor
and owner of Connington Wealth Management
Group in Pine Brook, NJ. He specializes
in working with physicians and health
care professionals who are committed to
developing a comprehensive long-term approach to
improving their quality of life while working toward a more
secure future. To receive a copy of his white paper on
wealth managemet issues for physicians or for questions or
comments, call 866-839-0924. For more information, visit