When Does a Separately Managed Account Make Sense for a Family?

A separately managed account can be useful when a family needs more control and visibility over a manager's strategy, and the allocation is large enough to make the arrangement practical. The account holds assets in the investor's name, while an appointed manager directs trades under the agreed mandate. That structure can give you a clearer view of holdings and more flexibility than a pooled fund.

Match the Account to the Allocation

Start by asking whether your allocation size justifies a custom account. A manager may be willing to offer one when the commitment is meaningful to the business, but that threshold varies by manager and strategy. Smaller allocations may fit better in a mutual fund or another pooled vehicle. It is reasonable to ask about a separate account, then compare the terms with the manager's standard offering.

Consider what the arrangement changes in practice. A separate account may allow you to see positions directly, realize gains and losses with more flexibility, and avoid some fund level expenses. Since the assets remain in an account for the investor, you may also have a more direct path to restrict trading or end the manager's authority, subject to the account terms and the liquidity of the holdings.

Weigh Benefits Against Operating Demands

More control comes with work. The family or its service providers may need to handle custody, reporting, accounting, tax records, and oversight of the manager's activity. Those costs can offset potential savings in fund expenses. Ask for a full comparison of fees and operating responsibilities, including how transactions are handled and what happens when the relationship ends.

Liquidity also depends on what the manager owns. An account may be in your name, but that does not make illiquid securities easy to sell. Review redemption terms, trading restrictions, and the time needed to exit positions. Your cash needs and spending plans matter, especially when comparing a liquid mandate with a fund that has a redemption cycle or a private investment with a long holding period. The liquidity and potential return tradeoff can help frame that review.

Make the Decision at the Portfolio Level

There is no universal preference for a separate account. The right structure depends on the family's allocation size, the manager's willingness and capability, the asset class, and the value you place on customization. Compare the account with pooled alternatives on transparency, cost, liquidity, tax handling, and oversight. Include it in the portfolio's overall design, as discussed in portfolio models.

Set expectations before funding. Document the investment mandate, reporting frequency, permitted holdings, liquidity limits, and the process for changing or ending the manager's authority. If the family is building its governance process, its governance framework should clarify who reviews those terms and who can approve changes.

A separately managed account makes the most sense when its added control and transparency solve a real need, and the family can support its operating requirements. Evaluate the structure alongside the manager and strategy, not as a benefit on its own.

A managed account is a independent financial account setup where the money remains completely under the fiscal control of the investor, yet the fund manager can direct trades in the account for as long as they have been appointed the right to do so.

Sources: The Family Office Book. Informational only, not financial, legal or tax advice.