Our clients have unique circumstances, requirements, and goals

What is Separate Account Management?

There are two kinds of asset management: Pooled and Separate Account.

This article explains the key differences and describes why we believe you are better off with Separate Account Management.

What is Pooled Investment Management?

In a nutshell it is a mutual fund. The fund pools the assets of thousands of people and invests them in the securities markets.

There are thousands of mutual funds that provide pooled investment services.

Everyone in the pool is invested exactly the same regardless of individual needs or circumstances.

What is Separate Account Management?

It is just the opposite. You have your own portfolio of securities, which could be exchange traded funds. Your assets are not pooled with other investors.

Many Separate Account Managers have minimum asset requirements, so they have enough money to properly diversify the investments of their clients.

What are the Downsides of Pooled Management?

Pooled asset management has several weaknesses that impact investors:

  • All investors in the fund are invested the same, regardless of need, goals, circumstances, or tolerances for risk
  • Your needs have to conform to the fund and not the other way around
  • Your performance can be impacted by people who are entering and leaving the fund
  • You may have to pay marketing fees (12b-1’s) to be invested in the fund
  • Many funds charge relatively high investment management fees
  • Some funds have billions of dollars to invest. The manager has to buy hundreds of securities to diversify invested assets. At some point, the manager may become a closet index fund.

Why Select Separate Account Management?

We believe there are several reasons why you are better-off with Separate Account Management:

  • Your portfolio is tailored to your specific needs
  • Advisors who provide separate account management also provide planning
  • You may pay lower fees for financial advice and services
  • You are not impacted by cash flow – in or out
  • There are no hidden fees

What About the Investment Process?

In the past, pooled and separate account managers invested their clients’ assets in securities. For example, a large pooled manager might invest in 300 securities based on the amount of assets available for investment. Whereas, a separate account manager may invest in 30-50 securities based on the amount of assets in the portfolio.

In recent times, more pooled and separate account managers are investing assets in exchange-traded funds, which can result in portfolios holding thousands of securities.

What About Risk?

Both types of managers are impacted by the same risk factors.

The biggest variables are:

  • The types of investments (stocks, bonds)
  • The number of investments
  • The risk characteristics of the investments

What About Expense?

Even though it may be counter-intuitive, many pooled managers (mutual funds) will have higher expense ratios than you might expect. In particular, when they have to pay financial advisors to sell their funds. Some fund managers compete on lower expenses – for example Vanguard.

Separate account managers also charge an asset-based fee, which may be higher or lower than pooled managers, for their services.

If a financial advisor is selling the pooled or separate account manager, the advisor will layer a fee on top of the manager, so you are paying for an advisor and a manager.

There is a certain amount of downward pressure on fees as exchange-traded funds and other forms of passive investment management become more popular.

What About GlidePath?

GlidePath Wealth Management only provides Separate Account Management services. We do not pool your assets with any other clients. All client assets are invested in exchange-traded funds.

Following are a few reasons why we believe our clients are better off:

  • Your portfolio is tailored to your specific needs, goals, circumstances, and risk tolerance
  • You can have your own Target Date Portfolio
  • It is easier to fine-tune your exposure to risk
  • Expenses can be significantly lower
  • Your performance is not impacted by people entering and leaving the pool
  • There are no add-on fees (a 12b-1 fee)

Download Our Complimentary eBook: How to Invest and retire like a millionaire

What do millionaires know that the typical investor may not know? Five answers are the topic of this complimentary eBook.