Stop Wasting Wealth in Mutual Funds Don F. Wilkinson

ASSET MANAGEMENT BEYOND MUTUAL FUNDS
Let Don F. Wilkinson introduce you to a better way of investing your money today: a separately managed account.

Comparing Separate Accounts with Mutual Funds:

Separate Account Affordability

Once only for the very rich, separate accounts are now available for the emerging affluent.

Separately managed accounts have moved from the back burner choice available only to the ultra-rich to the front burner choice for emerging moderate to high net worth investors.

As transaction costs were forced down by the new technology of information management and the increase of competition starting in the ’90s, many more investors possessed the wherewithal to participate in this exclusive investment strategy reserved in an earlier era for the Duponts and Rockefellers.

The ticket to get into a separate account is down to an average minimum of $100,000 and falling. This allows a new breed of investor—on average, younger and savvier than investors who aged with mutual funds—to demand a better investment experience. These investors expect to make money, expect excellent service, and expect up to date information on what is going on 24/7 in his or her portfolio. They also understand the effect taxes have on their portfolios.

A separately managed account provides significant cost advantages over mutual funds. Whereas mutual funds have significantly higher internal expenses plus commissions, a separate account charges a flat fee (usually 2-3 percent of annual value of the account) for all services. As more assets are plowed into these managed accounts, fees usually decrease, and a yearly fee of less than 1 percent is not unheard of.


Excerpt from Stop Wasting Your Wealth in Mutual Funds: Separately Managed Accounts—The Smart Alternative

Stop Wasting Wealth
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Chapter 11—Fees: Larger Hidden Fees or Flat Fees

If you wish to eliminate the loads, redemption fees, 12b-1 marketing fees, trading commissions, and soft dollars that proliferate among the mutual fund industry driving your fund expenses higher than is disclosed, consider flat fee pricing. If nothing else, this method of pricing cuts through the clutter of confusion connected to every mutual fund investment vehicle.

In a separate account, one yearly fee covers management fees, trading costs, and incidentals. Further, it includes fees for the money manager as well as the financial advisor. All other administrative functions necessary to service the account are also included.

The fee ranges between 1.5 percent and 3 percent of assets. Why the large spread? Separate account fees are based on a sliding scale. The more money you initially put in the pot, the lower the fee percentage. With mutual funds, the annual expenses remain constant no matter how much cash you invest. In any event, the separate account offers a much clearer, less deceptive form of fee structure.

Mutual Funds:

  • Eighty percent of funds yearly fail to match S&P.
  • High and myriad fees bilk and confuse investors.
  • Fund companies keep investors in the dark.

Separate Accounts:

  • Fee-based accounts let investors know exactly what they are paying.
  • SMAs cost less than funds.
  • Costs are decreasing and negotiable.