What Investors See in ‘Separately Managed Accounts’

It has become investment gospel: Ordinary investors should park their savings in low-cost mutual funds or exchange-traded funds and leave them there for the long haul — set it and forget it. Now, however, more middle-income investors are choosing a kind of actively managed account that used to be available only to the rich. These “separately managed accounts” are overseen by professional money managers and are personalized for an individual investor’s particular financial situation and investment goals. The downsides are potentially more complex fee structures and greater risk.

They are highly customized investment accounts that give financial advisers the flexibility to tailor allocations to a particular investor’s needs. For example, investors who want to track an index but exclude certain companies or industries — say “sin” stocks such as cigarette makers or gun sellers — can do so. Under this model, individual investors hold stocks or bonds directly. By contrast, when investors put money in mutual funds or ETFs, they hold stakes in the funds rather than the underlying securities.