It's the flexibility of customization available to clients that is significant. If a client has strong feelings regarding social responsibility, the environment, or faith-based values, they can implement those beliefs through their portfolios. On the other hand, such restrictions may not be as important for many clients. But that doesn't mean the client might not change his or her mind a year or two later-restrictions can be placed or lifted at any time.

In the past, many managed accounts looked alike as a result of a limited investment style offering, usually large-cap growth or value. Customization may be more common today as international, mid-cap and small-cap styles are more commonly offered, allowing clients to take advantage of greater individualization regarding asset allocation and other investment options. 

Myth Or Reality: Managed Accounts Offer Individuals The Same Returns As Institutional Clients

Reality. Virtually all professional money managers start with a "model" type of portfolio that represents their best thinking, their best ideas and their best asset allocation at a given point in time. It's true that with managed accounts today, the portfolios of most clients will be somewhat similar or, in some cases, very similar to that model portfolio that the money manager has assembled. Sislen explains, though, that based on when a client buys into a portfolio or when the client invests with a particular manager, the portfolio can look different than another client's based on the tax preferences, restrictions and other preferences of that other client. So the model portfolio is only a starting point. Tax differences, security restrictions and other factors will create very different, or somewhat different, portfolios for clients.

But in explaining this to clients, advisors should emphasize that the difference in tax status of institutional accounts versus individual accounts can automatically make returns different, if only nominally.  If the dispersion among accounts is extremely dissimilar, that certainly would raise some questions that need to be answered. But in most cases, it can be explained by restrictions, by tax transactions or by the timing of the actual investment. "Differing contributions and withdrawals between the accounts also create dispersion," says Sislen.

Another good talking point for the dispersion among accounts is that institutional accounts, such as foundations and endowments, are required to distribute a certain percentage of funds each year; an individual's disbursement needs may be quite different based on, for example, the need for income or one-time expenditures.

Myth Or Reality: Returns Will Be The Same For All Investors Using The Same Manager

Myth. Clients could experience very different performance based on that extra dimension of management that an overlay portfolio manager (OPM) provides (as in a multiple-strategy account). One of the important things an overlay manager takes into consideration is tax differences from client to client, which can result in very different transactions from client to client. In other words, performance may vary because the transactions that occur in the particular accounts may vary. Clients' portfolios get personalized attention and custom strategies; therefore, Client A's account might not look the same as Client B's. 
    For example, let's say two clients open accounts-one two years earlier and the other eleven months earlier. The manager decides to sell out of a particular position that both clients own. The clients bought the position at the time each opened his or her account. The two-year-old client has a long-term position, so the manager sells it. The eleven-month client has a short-term gain, so the overlay manager might decide to hold that position for another month so it becomes a long-term position for the client. Even if there is a model portfolio involved, two clients could have different positions in their respective portfolios due to the level of service being provided. This is just one of the reasons performance and positions could vary with one manager.

Myth Or Reality: Fees For Managed Accounts Are Higher Than For Mutual Funds

Myth, generally speaking. Fees don't seem to be an issue for managed accounts today, according to both Owen and Sislen. "No one is paying 3% in fees anymore, and mutual fund fees have been steadily creeping up," says Owen. Managed account costs are the same as, or are lower than, mutual fund costs. Clients can negotiate fees, so fees can be different for every client.  Gloekner of Eastern Point Advisors says fees depend on the investment level. "Clients with larger assets can more easily negotiate a lower fee and can demand greater customization of services than clients with smaller assets," he explains.

If a client tries to make the case that an SMA costs just as much or more than the typical mutual fund, a good talking point is, "Assuming that were true, let's look at what you can get in an SMA that you can't get in a mutual fund.  What's that worth to you?  What's it worth that you can take additional tax losses this year in an SMA that you can't take in a mutual fund? And that's only one of the benefits."

The menu of services is custom tailored to the client and also to the advisor's particular style and way of doing business with those clients, says Frank Campanale, president of Michigan-based Campanale Consult-ing, former president and CEO of Smith Barney Consulting Group. "The fee may be higher for a client who requires high-touch service than for one who only wants to meet with the advisor once a year. An advisor's style and level of service may require him or her to spend more time providing customized service to fewer clients with larger assets," he says.

  "The point is," adds Sislen, "it isn't about fees, it's about what you get for that fee. The issue of fees is much more in the head of the advisor than it is a real issue with clients."