 Why Separately Managed Accounts?
Whether you refer to them as "individually managed accounts" or "separately managed accounts", managed accounts have become more important than ever for higher net worth investors. To understand why they have such a strong appeal to affluent investors, consider the history of professional money management. Think back to the robber barons. Those industry titans made their money in heavy industry and then hired professional money managers to oversee their wealth. Likewise, large pension plans, endowments and other institutional investors have often entrusted their assets to professional money-management firms. With minimum investment requirements of $1 million, the services of these money managers have historically been well out of reach of the average investor.
Following are some of the benefits:
 Individual Cost Base
While mutual and pooled funds have some notable diversification attributes, the structure of these pooled investments means that you also share the tax base of the people in the pool. This can lead to unexpected taxes being triggered, regardless whether the fund value has gone up or down since an investor acquired it.
In separately managed accounts, your cost base is just that – your own. Therefore you will know and can plan for taxable events when you have a separately managed account.
Fee Deductibility
Investment Management should increase the likelihood of better investment performance. However, when investment returns are low, the very services that are meant to increase returns can become a significant drag on performance. The best way to reduce these fees is by making them tax deductible. In Canada, unlike mutual or pooled funds, where fees are charged to a non-registered separately managed account, the fees can be deducted from any source of income. In the case of high income earners this can reduce the net cost by almost 50%!
Customized Risk/Reward
It is a given that no two investors are exactly the same. Most have different expectations of return, the risk they are prepared to assume and even the amount of cash-flow they may require from their portfolio. A separately managed account by definition allows them to have each of these factors set to meet their own expectations.
Individual Reporting
Most of us want to know what our return has been on investments in order to see if the results will lead to our individual goals. With mutual or pooled funds, your return is the same as all the other holders of these pooled investments. As a result, many investors are unclear what return was achieved, particularly if they acquired or divested their pooled funds over time. A separately managed account shows the precise return on investments because it is your Separately Managed Account.
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