Tad Borek <borekfm[at]pacbell.net> wrote in message news:<F36Tc.3320$QJ3.2154[at]newssvr21.news.prodigy.com> ...

[reply deleted]

Tad,

Thanks very much for the analysis. All of the issues
you brought up sound very valid. I didn't have a good feeling
for using a separately managed account (especially since my assets
barely qualify for it) because of which I refused to enroll.
Now I feel even better about my decision.

I'm going to attend Fidelity's free seminar on asset
allocation next week, so let's see how that one goes

Anoop

Tad Borek <borekfm[at]pacbell.net> recently posted the following wise advice
re "managed accounts":

- quote -

[Various scenarious where managed accounts are beneficial deleted.]

This is true. But as Mr. Borek goes on to explain, unless your account
balance is large enough to really truly get the attention of the folks at
the brokerage house you are going to be paying the higher fee, but your
investment will be not much different than a mutual fund. So unless your
liquid assets are up there in the Thurston Howell III class, you should
think twice about signing up for a managed account.

- quote -

I never cease to be amazed by the creative ways that the brokerage
industry comes up with to increase their fees. Any investor who is
breathing can construct a diversified portfolio of index funds where the
annual expense will be less than 0.5 percent per year. If that investor
believes actively managed funds are the way to go, he can put together a
portfolio where the annual expense will be about 1.5 percent per year.
The original poster didn't tell us what the Citigroup Private Portfolio
Group will charge to put him into a "Zephyr Style Advisor portfolio," but
I am confident it VASTLY EXCEEDS the cost of garden variety mutual funds.


- quote -

Another pearl of wisdom from Mr. Borek. In my view, the broker/dealers
cleverly appeal to the investor's vanity by intimating that if you sign up
for a managed account you'll enter world of Gordon Gekko and your
portfolio will be tended by all manner of bright young men who get up
every day determined to make you megarich. But let's face reality, folks.
Unless you have *serious* money to invest, you will never ever get that
kind of service. (How serious? Take a look at Barrons annual survey of
private banking and look at the minimum account sizes demanded by the big
boys. Then realize that unless you hit the Powerball you'll never EVER be
in that league.)

- quote -

Another excellent warning. The divvied-up mutual fund sold as a "managed
account" may not be very tax efficient. And even if all that trading makes
you a little money, the hassle come tax time is likely to be significant.
By way of contrast, the index fund investor can do his taxes in about an
hour using Turbo Tax.

- quote -

AMEN!

The original poster should print out Mr. Borek's superb analysis and keep
it handy by the phone in order to fend off the Smith Barney guy the next
time he calls.

Anoop Ghanwani wrote:
- quote -

Anoop,
If done right I think there are some real benefits to a truly,
separately-managed account. You might want to exclude certain stocks or
sectors for example...like if you have a bunch of your employer's stock,
or you work in tech (ie earnings tied to tech) and wanted more
diversification away from the sector. Or if you wanted to exclude
certain types of stocks for "socially responsible" reasons - tobacco
being a common one, food conglomerates & defense less so.

Or, you might want to do some fancier tax management - charitable giving
of appreciated stocks, tax-loss sales of specific lots, that kind of
thing. Or you might simply have, right now, a portfolio of 3 or 15 or 30
stocks and because of large capital gains (currently unrealized) want
them to be managed and incorporated into your overall investing plan.

All of the above requires hands-on management of your account, in a
manner different from every other client out there. Either you need to
do it or pay someone to do at and that to me is "separate account
management." Compare that to just putting together a mix of mutual funds
for you and checking in every now and then - that's not as demanding a
task really.

But I don't think that's what's being sold mostly. Most of what seems to
be out there is essentially a mutual fund divvied up into hundreds or
thousands of smaller accounts using software. Holdings are common across
all accounts. The software might have some filtering on it to allow you
to exclude holdings, and allow for some personalization (eg "underweight
tech to 50% of market weight") but it's not like there's a portfolio
manager who you can call up and chat about that big position that's 40%
of your portfolio, "think we should take a little off the table today?"
And tax management probably isn't very personalized either.

As an extreme example of "it's just a diced up mutual fund" I have a
client who had a SMA (prior holding) that generated a 55 page 1099-B
last year, due to all the trading activity. This wasn't a very big
account at all, just over the minimums. The lots looked like: 0.204 shrs
GE, 0.110 shrs INTC, that kind of thing. That's crazy to me, I truly see
no benefit to that, it's just a mutual fund divvied up. It creates
administrative hassles and to me is no more likely to outperform than a
comparable mutual fund. And of course as you said the expense levels
were much higher than the fund alternative would be.

This isn't really all that new (wraps are similar), it's just been
pushed down-market and marketed more extensively - perhaps, because of
some new software apps that allow it and that simplify the reporting for
the SMA manager. As before, it takes a certain portfolio size for a
manager to be there to pay attention to you and truly manage your
account separately and personally. I suspect this is another thing that
will come and go at least as a mass-market offering, because at the end
of the day most people will do just fine with mutual funds.

-Tad

"jay1000" <jfschonREMoVE[at]yahoo.com> wrote in message news:<j7aRc.28980$cv5.8933[at]lakeread07> ...
- quote -

I don't have any experience with these but have also been looking for
more information because a lot of banks seem to be pushing
"separately managed accounts". These accounts essentially invest in
portfolios of stocks. The fees are quite high. A little bit of research
on the web shows the average cost to be a minimum of $2500/yr but for
accounts with lots of money (> 100K) it goes up slightly and is a function
of percentage of total assets. I'm unable to see a clear benefit to doing
something like this. If someone can shed some light on the pros/cons
of a separately managed account, I'm all ears.

Anoop

My SmithBarney broker suggests that I convert my broker account into a
managed account. Their managed accounts employ all sorts of statistical
models but mainly Zephyr StyleAdvisor. The managed account invests in
mainly Citigroup Private Portfolio Group portfolios. These appear (to me)
to be similar to specialized mutual funds but without some of the restraints
and controls.

Of course, StyleAdvisor pumps out enough statistics to "prove" that
Citigroup portfolios beat any mutual fund portfolios. Hard to believe that
these guys at Citigroup can beat than all 6000 domestic stock mutual funds.
Citigroup is also the bunch that used mutual funds as dumping ground for
selected clients.

Anyone with any experience or knowledge of Zephyr StyleAdvisor or Citigroup
private portfolios?