The growing demand for managed accounts has created a supermarket of confusing product choices. The aisles are crowded with investors trying to figure out what they need and with advisors eager to help the customers decide, but wary of scaring them off.

The central problem facing both buyer and seller is this: Though virtually all managed account programs share the key elements of successful investing — asset allocation, diversification, performance monitoring — not all investors respond to the same packaging. Choosing the right product comes down to determining which features are the ideal fit for each customer.

The Four ‘Cs’

As in diamond shopping, four “Cs” should factor into choosing managed account options.


A complete array of asset classes is required for proper diversification and maximum potential success. Some managed account products require more substantial assets in order to provide full diversification. For example, to gain exposure to five different asset classes with a $100,000 minimum-per-managed-account strategy, clients must invest at least $500,000 — and that assumes equal weighting. More complex solutions require more assets. How much diversification does the client require?


Does the client like to look “under the hood” of the investment process? If so, managed accounts provide the ultimate transparency through the direct ownership of individual securities. The downside is that too much detail about the “moving parts” can unnerve clients unable to cope with many security names. A managed account made up of mutual funds is simpler by comparison to one composed of individual securities.


While most managed accounts offer the opportunity to tailor the account to the investor, what level of customization is actually needed? If the client has substantial stock holdings from years of employment at IBM, for instance, he might want to exclude that issue from his managed accounts. If an advisor has a separately managed account, he can issue a restriction to the managers. Conversely, a managed account made up of mutual funds cannot provide that level of specificity.


Do the advisor and client want to be more involved in the decision process, such as overweighting asset classes and “fine-tuning” the account as markets change? Clearly, mutual funds are easier to use when managing finer percentages among asset classes. Rebalancing with separately managed accounts can be more cumbersome by comparison.

Shopping for Managed Accounts

Here's how most managed account products score in each of the Four “C” categories, ranging in fit from the worst (1) to the best (5):

Separately Managed Accounts

A single management firm for each account. The client owns individual securities in his own name, managed by the firm and limited to a single investment discipline, such as large-cap growth or small-/mid-cap core.

Classes Clarity Customization Control
3 5 5 2

Mutual Fund Managed Accounts

Multiple mutual funds owned by a single client account, permitting broad diversification. No individual securities, but individual funds are separate lots and rebalancing is easy, though the accounts may be taxable.

Classes Clarity Customization Control
5 1 2 4

Multiple Discipline Accounts

A hybrid breed of managed account utilizing individual securities, but including multiple disciplines and, typically, account rebalancing.

Classes Clarity Customization Control
3 5 2 2

Asset Allocation Funds

Skeptics beware: These products have filled a niche among smaller accounts.

Classes Clarity Customization Control
3 2 2 1

The industry offers plenty of attractive managed account options. Be sure to shop carefully and look beyond the packaging to find a fit that's right for each client.

Writer's BIO: Steve Gresham is executive vice president, chief sales and marketing officer for the private client group of Phoenix Investment Partners. He is the author of The Managed Account Handbook: How to Build Your Financial Advisory Practice Using Separately Managed Accounts and Attract and Retain the Affluent Investor: Winning Tactics for Today's Financial Advisor. Contact him at