Do you know how your money is currently managed?
Do you know how much you are paying to have your money managed?
Many times, if you are working with a larger brokerage firm or asset manager the advisor will use “Managed Accounts.” What is a managed account? A managed account has more than one meaning, it could be what’s called a Separately Managed Account, which is like a mutual fund managed specifically for you A separately managed account is managed for you, whereas a mutual fund is managed for all the fund investors. It’s like having your own private mutual fund. Fees may be higher or lower than a comparable mutual fund although fees for a separately managed account tend to be higher than a comparable mutual fund. If income taxes are a concern, the investor may have input into how much buying and selling occurs to minimize income taxes and the separate account manager will usually engage in tax-loss harvesting at the end of the calendar year to minimize taxes if it is a taxable account.
The term “managed account” could also apply to an account (or group of accounts) managed on your behalf by an investment adviser. It is possible to have a managed account in a group of mutual funds across different fund families
Which one are you in? Chances are that you will be in the second category. Most mutual funds carry a direct or indirect sales charge that you pay to the mutual fund company either at the time the shares are purchased (front-end charges) or on a regular basis for as long as you hold the fund (deferred sales charges). Your front-end charges may be reduced or eliminated as the amount of your investment with the mutual fund company increases above certain levels. Such reduced charges are known as break point discounts.
As a client, why would you pay an advisor to put you in a mutual fund? There are many low-cost mutual fund companies you can choose from like Vanguard. As an advisor, you need to provide a client a Value-Add that goes beyond investing in mutual funds. At Alpha Street, we are a Fee-Only firm, with transparent fee structure. Our goal is always to keep investor’s costs low.
How do we do it? By creating a customized strategy just for you. First, we start with a risk assessment test, this tells us the amount of risk appropriate just for you the client. Than we sit down and discuss near term needs and long-term goals and come up with the right strategy for you. Often, clients believe they can withstand higher risk than they truly can. We like to take the guess work out and come up with a long-term strategy just for you.
In the first picture you will see a REAL portfolio from one of the largest investment advisor firms on wall street. They tend to associate themselves with a Bull. Here you will see the actual expenses associated by the managed accounts, as relayed by a client in the firm.
As you can see the advisor fee is 2% which is typical for accounts under $500,000 at the larger firms. But that’s not the only fee they charge you, managed accounts tend to come with higher fee’s which include 12B-1 fee’s which is a form of commission going back to the advisors. If you scroll over to the fund fee’s you will see the cost to manage the funds, with the 12B-1 incorporated into the overall fund fee. So, the total cost to manage the client’s portfolio is $7139.25 or 2.85% of your money, per year.
Alpha Street can create a similar portfolio with a more hands on approach for a fraction of the cost. As a Fee-Only firm, we are compensated to put the client in the best products available, not the best product for US. As you can see from the chart below, our portfolio which is similarly structured would cost $4096 a year, savings of $3043 or 1.22% a year. That is a significant improvement to your long-term portfolio returns.
Alpha Street works with TD Ameritrade Institutional as our custodian. As our custodian, they hold all the securities and funds for our clients, we just have access to manage the accounts on our client’s behalf. This is allowing us to provide complete transparency and cutting-edge security & technology to all clients. Clients have 24/7 access to there accounts through the online portal. TDAI is one of the largest discount brokers with assets of $1.2 Trillion dollars and offers FDIC/SIPC insurance to all accounts held by them.
For more information, feel free to contact us at Alpha Street. Where our goal is to “Bring Alpha Back to Main Street.”