Separately Managed Accounts: Customized Client Portfolios

A separately managed account means that a separate brokerage account is maintained for each client and the Investment Advisor buys and sells securities in the account on behalf of the client. In such an account, the investment strategy can be tailored to meet the client's individual return goals and risk tolerance.

Also, the client (or Investment Advisor) can control the timing of tax gains and losses precisely and thereby manage tax liabilities. Contrast this to a mutual fund where you are investing alongside many other investors in a portfolio based on one particular strategy. First of all, a fund's strategy may never exactly fit your own objectives precisely. Then, through time, your goals may diverge even more from those served best by the fund's strategy. When this happens you must close the account and look for a new mutual fund that follows a strategy more closely related to your own objectives. In addition, you have no control over the timing of taxable transactions in a mutual fund.

The reason most people have not heard of separately managed accounts is that most investment advisors will not provide this level of service until you have a relatively large amount to invest. You need at least $100,000 in liquid assets to find an advisor to manager your account separately; most will require a much higher minimum level of assets. Fees on such accounts depend on the size of the account. Typically fees start at a relatively high 3% per year and slowly decline with account size. It's not till you get to the $1 million mark that management fees drop to a more reasonable 1% of assets. Note that trading costs come on top of these fees.

Berkeley Investment Advisors uses the Foliofn online brokerage platform to provide a much more cost effective solution for our clients. Foliofn enables us to customize well diversified portfolios for small accounts at much lower costs. At 1.75% of assets annually, our base fees are comparable to those of mutual funds. Although index funds may have lower fees, our returns over the long run are likely to more than offset any fee difference (Fee percentages are lower for larger account sizes). Foliofn is a regulated broker dealer and therefore its accounts are backed by the industry account insurance (SIPC). All moneys and securities will be in the custody of Foliofn and they will provide monthly statements and tax accounting for transactions. Note that there is complete flexibility in determining share lots sold for tax purposes.