A separate account is basically an investment portfolio. This portfolio owned by an investor, yet it managed by a professional investment firm. Most investors open a separate account through a brokerage or financial advisor. But, some of them open it through an insurance company or hold it at a bank.
Some people also call this account as individually managed account or separately managed account (SMA).
Ways that Separate Account Works
Commonly, a wealthy retail investor with at least six figures to invest owns this type of account. Besides, the owner of this account usually wants to partner with a professional money manager with one customized investing objective.
Generally, the minimum investment that investors need to open this account starts from $100,000. After the investors open the account, the money manager will offer them targeted strategies for the account.
Within this separate account, we don’t put together the funds with the money from other investors, like in the mutual fund. Investors have the privilege to choose from a range of approaches that suitable for his or her individual investment goal.
On the day to day basis a portfolio manager or a registered investment advisor (RIA) is the one who make the investment decision. Mostly, these people are also get supported by expert analysts.
In the broad definition, this account belongs to a single investor that can be an institutional investor or an individual or retail investors.
That person then hires a professional money manager to oversee the account. After this dedicated manager gets the discretionary authority to manage the account, then he or she actively makes the investment decision. This manager always considers the client’s needs, risk tolerance, asset size and goals for every decision made.
What Should be Considered?
Before an investor decide to open this account, he or she should learn the fee structures of the professional money manager. The fee structure can vary and sometimes, it can be very expensive.
Portfolio managers’ and RIA’s fee commonly range from 1% to 3% of the number of assets under the management.
