For many years traditional unitised managed funds have been the primary method for investors to gain access to investment markets.  By pooling investor funds together, managers could gain economies of scale, a wide diversification of holdings (particularly for smaller accounts) and provide experienced investment management on a wholesale  basis.  However this grouping of investors meant the loss of a number of benefits for the individual investor and an increase in the structural complexity of the investment.  Recent advances in systems technology has led to the emergence of managed accounts as a real alternative for investors, enabling them to have the benefit of professional discretionary asset management, whilst retaining the benefits flowing from direct and beneficial ownership of their assets.

A snapshot of Managed Funds vs Managed Accounts

Managed Funds Managed Accounts
Tax efficiency Poor Excellent
Portability None Excellent
Managed to a particular tax structure No Yes
Transparency Limited Excellent
Direct ownership No Yes
Embedded tax liability Often No
Capital losses can be applied to: Future gains within structure Any current or future gains
Variety Comprehensive Limited
Portfolio construction Often benchmark Tailored
Tailored management No Yes
Management tax deductibility No Often

Managed funds are most suitable for the following investors and strategies:

  • Small investors on lower marginal tax rates seeking professional management and diversification
  • Investors seeking specialist asset classes
  • Access to large scale illiquid assets such as real estate or private equity

An individually managed account would be suitable for the following investors and strategies:

  • Wealthier investors
  • Investors with a high sensitivity to tax or those seeking to focus on after tax returns
  • Investors seeking a tailored and individual approach
  • Investors seeking a higher degree of transparency and accountability from the manager
  • Tax effective transfer of an unmanaged direct share portfolio to a professionally managed structure with high portability

Identifying and implementing the appropriate investment vehicle is an important part of any a strategy for building long term wealth to provide for your financial future.  The consequences of investing through the wrong investment structure can have a significant detrimental effect on your long term after tax financial outcomes.  An experienced, specialist wealth adviser can help identify and explain these differences to ensure you are invested appropriately to meet your financial goals and objectives.