In my last column, I noted that investors should avoid fee-hungry financial advisors peddling expensive investment products, full commission brokers who want to manage your account on a transactional basis, and insurance salesmen promoting variable annuities and whole life.

However, there are plenty of smart men and women who lack the time, expertise or temperament to manage their own money effectively.

[ad#Google Adsense 336×280-IA]Many of them would benefit from setting up a managed account with a registered investment advisor.

Traditionally, institutional investors have used professional managers to run their portfolios. Until recently, individual investors could access these managers only if they had millions of dollars to invest.

In recent years, however, the minimum investment requirements and costs have come way down. That means ordinary investors can benefit too.

When you open a managed account, you sign a limited power of attorney to let a registered investment advisor run your portfolio or some portion of it.

Generally speaking, the manager begins by determining your investment goals, time horizon and risk tolerance. The portfolio of a 75-year-old widow, for example, would look very different from that of a 25-year-old couple.

There are several benefits of a professionally managed account:

  1. Custom asset allocation. The portfolio is based on your personal circumstances and investment goals, not a general strategy like “growth” or “income.”
  2. Transparency. Unlike mutual funds, you know what’s in your account. You have 24/7 access to your account and can see exactly what you own.
  3. Tax management. Your portfolio can be run so that state and/or federal taxes are minimized or eliminated.
  4. Competitive fees. Account managers charge a flat annual fee rather than commissions. The cost is generally a lot less than using a full-service broker in a transaction-based relationship.
  5. Performance. Managed accounts make available the services of top money managers using investment systems with proven track records.
  6. If you are too busy to give your investments the attention they deserve – or if you are an inexperienced or anxious investor – having a professional run your portfolio may be your best solution. It offers you not just more free time but peace of mind, as well.

Don’t get me wrong. 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.

On the other hand, if you or someone else has been managing your money for years and you aren’t satisfied with the results, you may be an ideal candidate for a managed account.

I recently spoke with Greg Galloway, president of Fund Advisors in Orlando, Florida, who runs some managed accounts based on The Oxford Club’s asset allocation and investment recommendations.

“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 often 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 manage their money effectively.”

How about investors who say they can save money by doing it on their own?

“You may be able to do it on your own through a deep discounter for a little bit less,” said Greg. “But the crucial question is not ‘how cheaply can I do this?’ It’s ‘Am I satisfied with my annual investment returns net of what I’m paying in fees?’ If you’re not meeting your most important investment goals, the fact that you’re paying next to nothing is a small consolation. The other day I had a new client who said, ‘Greg, it finally dawned on me that if no one else would pay me to manage their money, maybe I’m not the best person to be managing my own.’”

In the end, whether you should use 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 or the grocery store on the way home and just pick up a bag.

Managed accounts are for those who would rather let someone else grow the tomatoes.

I mentioned in my last letter that you should never use a money manager who isn’t knowledgeable, experienced, trustworthy, cost-effective, fully vetted and without conflicts of interest.

If you know someone locally who fits the bill, fine. If you don’t – or would like to learn more about managed accounts – feel free to contact Greg Galloway and Rick Pfeifer at Fund Advisors. They are based in Maitland, Florida, but clear through Charles Schwab and have clients nationwide. (Minimum account is $100,000.) Rick and Greg can be reached at 800-438-3040 or 407-667-4729.

We at Investment U are not brokers, dealers or licensed investment advisors. We mention these individuals for information purposes only and do not receive compensation for any arrangement you may reach with them.

In sum, managed accounts are an excellent choice for some investors. Others prefer to grow their own tomatoes.

But it never hurts to know your alternatives.

Good investing,



Source: Investment U