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25.3 Managed Fee-based Accounts

Comprehensive guide to managed fee-based accounts, comparing their features, advantages, and disadvantages. Includes details on taxation, fee structures, and various service levels within managed fee-based accounts.

25.3 Managed Fee-based Accounts

Managed Fee-Based Accounts Overview

Managed accounts represent a significant service offering within the investment landscape. Clients allow licensed portfolio managers to make discretionary investment decisions on their behalf, leveraging the manager’s expertise to suit the client’s financial goals.

These accounts, often solicited by investment dealers, share several key features:

  • Professional Investment Management: A licensed portfolio manager possesses the trading authority over the account.
  • Individual Asset Ownership: Clients directly own the investments within the account, unlike pooled investments such as mutual funds.
  • Service Package: A foundational package includes trading, rebalancing, asset custody, operational support, and specialized client reporting.

Detailed Features of Managed Fee-Based Accounts

Assets Held Exclusively for the Client

Assets in managed accounts are held exclusively for the client, providing distinct ownership as compared to pooled mutual fund assets.

Comprehensive Service Package

Basic services encompass trading, portfolio rebalancing, asset custody, operations support, and comprehensive reporting.

Investment Beyond Management

Additional services may extend to include broader wealth management and financial planning.

Investment Policy Statement

The Investment Policy Statement (IPS) allows clients to outline specific management instructions and highlight special considerations for their accounts. It serves as a guiding document for the portfolio manager.

Enhanced Transparency

Managed accounts provide transparency, with supplemental quarterly reports and comprehensive year-end summaries. These reports may include market commentary, performance charts, tables, portfolio composition, and detailed gains and losses per security.

Fee Structure of Managed Accounts

Fees for managed accounts are notably different from mutual fund Management Expense Ratios (MERs):

  • Tax Deductibility: Fees are tax-deductible for non-registered accounts.
  • Lower Fees: Fees are generally lower compared to mutual funds depending on the client’s asset size.
  • Negotiable Fees: Unlike fixed mutual fund fees, managed account fees are negotiable, often based on asset size and required services.
  • Transparent Fees: All fees are transparent, clearly reported, and charged separately.

Discretionary Accounts Explained

A discretionary account provides temporary discretionary authority to an investment manager under specific circumstances, such as client illness or absence. Key points include:

  • Authorization: Must be specifically authorized, approved, and accepted in writing by a designated supervisor.
  • Temporary in Nature: Valid for a maximum term of twelve months.
  • Client Agreement: Involves a signed discretionary account agreement by both the client and the dealer, outlining any trading restrictions.

Types of Managed Fee-Based Accounts

Clients can select from various managed account types based on their needs and asset levels:

    graph TB
	    A[Types of Managed Fee-Based Accounts]
	    A --> B[Mutual Fund Wraps]
	    A --> C[Exchange-Traded Fund Wraps]
	    A --> D[Advisor-Managed Accounts]
	    A --> E[Separately Managed Accounts]
	    A --> F[Household Accounts]
	    A --> G[Private Family Offices]

Each category offers progressively sophisticated product offerings, with increasing customization and personalized service.

FAQ

Q: What is a managed fee-based account? A: It is an investment account managed by licensed portfolio managers, where clients pay a fee for consolidated financial services including trading, rebalancing, and portfolio management.

Q: How are fees in managed accounts different from mutual funds? A: Managed accounts have negotiable, often lower fees that are tax-deductible for non-registered accounts. All fees are transparent and separated from investment gains.

Key Takeaways

  • Managed fee-based accounts allow clients to leverage professional management for their investments with direct asset ownership.
  • These accounts offer extensive and customizable services ranging from basic trading to advanced wealth management.
  • Fees are transparent, negotiable, and tax-deductible for non-registered accounts, setting them apart from mutual fund fees.
  • Discretionary accounts differ from managed accounts by providing temporary investment authority, requiring specific client authorization and detailed agreements.

Glossary

  • Managed Fee-Based Account: An investment account managed by professionals for a fee, with direct asset ownership by the client.
  • Investment Policy Statement (IPS): Document outlining the client’s investment management directives and special considerations.
  • Discretionary Account: A temporary arrangement granting investment discretion to a manager for up to twelve months.

By understanding the features, advantages, disadvantages, and various types of managed fee-based accounts, clients can make informed decisions suited to their financial goals and asset levels, leveraging professional management to grow and protect their portfolios.


📚✨ Quiz Time! ✨📚

🧐 Assess and Solidify Your Understanding

Welcome to the Knowledge Checkpoint! You’ll find 10 carefully curated quizzes designed to reinforce the key concepts covered. These questions will help you gauge your grasp of the material, identify areas that need further review, and ensure you’re on the right track towards mastering the content for the Canadian Securities certification exams. Take your time, think critically, and use these quizzes as a tool to enhance your learning journey. 📘✨

Good luck! 🍀💪

## What is a key characteristic of managed fee-based accounts in terms of assets? - [ ] The assets are pooled like with a mutual fund. - [ ] The assets belong to the investment dealer. - [ ] The assets are borrowed for trading purposes. - [x] The assets are held exclusively for the client. > **Explanation:** In managed fee-based accounts, the client has direct ownership of the investments, unlike mutual funds where assets are pooled. ## Which professional manages a managed fee-based account? - [ ] A financial advisor without trading authority. - [x] A licensed portfolio manager with trading authority. - [ ] A trust administrator. - [ ] A client service representative. > **Explanation:** Managed accounts are professionally managed by licensed portfolio managers who have trading authority over the account. ## What is included in the basic package of services in managed fee-based accounts? - [ ] Only trading - [ ] Only custody of the assets - [x] Trading, rebalancing, custody, operations, and specialized reporting - [ ] Only wealth management > **Explanation:** The basic level of services for managed fee-based accounts typically includes trading, rebalancing, custody of the assets, operations to support clients, advisors, and portfolio managers, and specialized reporting for clients. ## How are fees typically charged in managed fee-based accounts compared to mutual funds? - [ ] Fees are identical to mutual funds. - [ ] Fees are standardized regardless of the client's assets. - [x] Fees are tax deductible for non-registered accounts and generally lower. - [ ] Fees are hidden and not disclosed to the client. > **Explanation:** Fees for managed fee-based accounts are tax deductible for non-registered accounts, generally lower than mutual fund fees, negotiable based on assets and services, and transparent. ## What is the purpose of an investment policy statement in managed accounts? - [ ] To determine the fees charged - [ ] To select third-party investment managers - [x] To outline how assets should be managed and any special considerations - [ ] To provide legal disclaimers > **Explanation:** An investment policy statement allows the client to outline specific guidelines and considerations for managing the assets in the managed fee-based account. ## Which type of account allows temporary discretionary authority? - [ ] Managed account - [x] Discretionary account - [ ] Mutual fund account - [ ] Forex trading account > **Explanation:** Discretionary accounts allow temporary discretionary authority, often for reasons like illness or temporary absence, and must be authorized and approved in writing. ## How often is investment management activity disclosed in managed fee-based accounts? - [ ] Daily - [ ] Weekly - [x] Quarterly and annually - [ ] Monthly > **Explanation:** Managed fee-based accounts offer greater transparency by providing supplemental quarterly reports and a year-end summary. ## What can be a reason for granting discretionary authority in a discretionary account? - [x] Temporary absence from the country - [ ] Desire for higher returns - [ ] Interest in different investment strategies - [ ] Requirement for tax benefits > **Explanation:** Clients may grant discretionary authority in discretionary accounts for specific reasons such as temporary absence from the country, but not for general investment interests or tax benefits. ## What differentiates professional management in managed accounts? - [ ] The manager has no trading authority. - [x] The manager is a licensed portfolio manager with trading authority. - [ ] The assets belong to the portfolio manager. - [ ] The manager provides custody services. > **Explanation:** Professional management in managed accounts implies management by a licensed portfolio manager who has trading authority over the account. ## What type of additional services might be included beyond investment management in managed fee-based accounts? - [ ] Only trading operations - [ ] Tax consulting only - [ ] Insurance services only - [x] Wealth management and financial planning > **Explanation:** Beyond investment management, managed fee-based accounts may also include additional services like wealth management and financial planning.

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In this section

  • 25.3.1 Exchange-traded Fund Wraps And Mutual Fund Wraps
    A comprehensive guide to understanding exchange-traded fund (ETF) wraps and mutual fund wraps within managed accounts, explaining their structures, benefits, and management approaches.
  • 25.3.2 Advisor-managed Accounts
    Comprehensive guide on advisor-managed accounts in the Canadian Securities Course. Understand the benefits, types, and tax implications of advisor-managed accounts.
  • 25.3.3 Separately Managed Accounts
    A comprehensive guide to Separately Managed Accounts (SMAs) for Canadian investors. Understand the benefits, management structures, and roles of sub-advisors and overlay managers.
  • 25.3.4 Household Accounts
    Explore Household Accounts in the Canadian Securities landscape, detailing their structure, benefits, and the strategic allocation for optimal tax management across a family’s holdings.
  • 25.3.5 Private Family Office
    Learn about the structure, benefits, and operation of Private Family Offices for high-net-worth individuals.
  • 25.3.6 Documentation For Managed Accounts
    Explore comprehensive documentation for managed accounts, complying with IIROC rules, client agreements, and regular reviews. Learn best practices to ensure fair investment allocation and regulatory compliance.
Saturday, July 13, 2024