Myth Or Reality: Managed Accounts Are Great For Every Investor

Myth. They are not the right investment vehicle for every client-even if the client has the minimum amount of money necessary to open an SMA or a multiple-strategy account. "If a client is not willing to take at least a two- to three-year view, managed accounts may not be the right fit," says Sislen. "This is assuming the client has hired not just one manager, but multiple managers, which I believe can be the most appropriate way to invest in managed accounts.  In any one quarter of any given year, certain of those managers are going to under- or outperform other managers."

Some talking points for clients might include the following: Managed accounts are most appropriate for clients willing to delegate day-to-day management responsibility to a professional money manager. They also must be willing to have a highly diversified portfolio of securities. Many clients are used to having a concentrated portfolio, therefore having a highly diversified, large portfolio is not for everyone. Regardless of the possible benefits of such a portfolio, some clients would rather be more aggressive and take more risks with a more concentrated portfolio. 

Dispelling Myths

Education can prevent or eliminate myths surrounding managed accounts and help clients take advantage of the benefits they afford. Campanale and Sislen both agree on having some basic points to discuss with your clients so misunderstandings don't take hold.
Here are a few:
    1.) Even with the low minimums now available, every client is not a candidate. Tell them how managed accounts operate, look at their needs, then make the decision.
    2.) Discuss the advantages of why it is important to take a long-term view.
    3.) Explain that in any short period of time, a manager might underperform the benchmark, index or mutual fund, so a short-term worrier is not a good candidate, nor is an aggressive investor with a concentrated portfolio.
    4.) Discuss fees openly and show comparisons to other vehicles.
    5.) Explain your process and how SMAs fit into your practice.

According to the experts interviewed, there needs to be a serious commitment on the part of the advisor to properly explain and deliver these services. The advisor must be a consultant and understand that education is a continuous process. Otherwise, myths and misunderstandings will proliferate, they say.

Don't allow clients to conjure up misinformed ideas about investment solutions that might damage their overall impression of your service, as well as their portfolio's performance.  Be a hit, and stop the myths.

The author thanks Mr. Sislen for his assistance in providing the additional research for the article. We also congratulate Mr. Owen on his latest book, Cowboy Ethics: What Wall Street Can Learn From the Code of the West.

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