Mutual funds v. managed account

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Oct 6, 2005 11:06 pm

Ok, so mixed feelings on the C-Shares…

Since Mutual Funds are not required to disclose their trading costs,
the internal fees end up being much higher than advertised in the
prospectus.  Usually in the range of 4-5% annually, including
everything. (I have a peice from Morningstar that discloses all
this…great to use on prospects when pitching a managed account…lemme
know if you want it).  So tell me why a private money manager is
not the ultimate product.  At ML its called Consults, and can be
discounted down to 2.3% I think, but I still feel 3% is fair
considering it includes everything.  With a mutual fund you have
idiot individual investors pouring money into it when they market is up
(forcing managers to BUY HIGH), and when the market is down you have
moron individual investors pulling money out (forcing managers to SELL
LOW).  With a private money manager you avoid all of this, at the
same time paying lower fees.  Am I wrong?

Oct 6, 2005 11:51 pm

You're not wrong if your numbers are absolutely true.  This assumes that all funds are that expensive, which I would question.  The retail investor point is valid, although managers can control it to a degree by not staying fully invested (which I'll admit is not ideal over the long haul), or by closing the fund.

I'm also still having some trouble believing that PMMs are cheaper.  While it may be true sometimes, I have a hard time believing it is always the case, or even usually the case.  I'm just trying to figure out why a PMM would even be willing to work cheaper?!!

Finally, I just looked at a competitor account fom Smith Barney that only had PMMs in it, and the performance averaged anywhere form 2-6% less over the last 12 months per asset class than the funds I generally use.  That's a lot to overcome, even if the funds are more expensive.

In the end, which risk management is important, for the customer, it's all about one performance after all fees.

Oct 7, 2005 7:45 am

Don’t forget about the control you have in managed accounts. 

***You can execute looses and gains, whcih gives you value added conversations with their CPA.

***keep certain positions out of the portfolio if the client wishes

***you can have bond managers not reinvest when bonds mature without you and your client giving the go ahead, etc…

The only problem is getting the diversification with small
accounts.  To hit a number of asset classes and such with managed
money you need $250K (ML) per account, although this is changing. 

Oct 7, 2005 9:45 am

You all have valid points. But I have access to Dimisional (DFA's) so I only use managed money occasionally (Fixed income)! The nice thing about DFA is you never have to apologize to the client and the money will never leave. If they have other  money with a wire house it is only a matter of time and it will come over to DFA! It is true that the wire house are trying to  make some of there products look like DFA but it will still take them years to perfect them.