separately managed account -- worthwhile?

[sitout]

Fidelity and others offer so-called Separately Managed Accounts (SMA) where a targeted portfolio such as munis is selected and maintained for the specific investor. High minimum investments such as $500K are required with not-outrageous annual asset management fees of for example 0.4% for munis.

Do these arrangements make sense over a related fund from Vanguard or elsewhere that might have an expense ratio less than half the SAM annual management fee?

Thanks.

[livesoft]

No, they don't make sense for someone who knows how to invest tax efficiently with reasonable asset allocation.

[Theseus]

As part of my overall portfolio planning with Fidelity assigned financial planner he had recommend that I invest in one of their products. After doing a lot of research I invested some $ in an SAM which is focused on mimicking S&P 500 return but at the same time it is focused on tax loss harvesting. I invested on January 17th of this year and YTD the portfolio value is same as if I had invested in S&P 500 index fund but their ER is about 39 basis points. But they have already generated over 5% capital loss since then. This will help offset dividend and gains I have from my much larger S&P500 index fund investment. It has been only 4 months so not sure how it will pan out.

They were pushing me for munis as well, but I increased my vanguard allocation on the bond funds instead of investing in their SAM product for munis.

[arf1410]

Thesesus - I there a way to check the past performance of some of the fidelity SMAs?

[Murgatroyd]

As part of my overall portfolio planning with Fidelity assigned financial planner he had recommend that I invest in one of their products. After doing a lot of research I invested some $ in an SAM which is focused on mimicking S&P 500 return but at the same time it is focused on tax loss harvesting. I invested on January 17th of this year and YTD the portfolio value is same as if I had invested in S&P 500 index fund but their ER is about 39 basis points. But they have already generated over 5% capital loss since then. This will help offset dividend and gains I have from my much larger S&P500 index fund investment. It has been only 4 months so not sure how it will pan out.

They were pushing me for munis as well, but I increased my vanguard allocation on the bond funds instead of investing in their SAM product for munis.

+1!
We’ve held this SMA for just shy of 2 years. Like it enough to have increased our investment.
I look at the cost as small offset to the capital gains savings, including the $3000 that can be deducted from regular earnings.
To answer your questions: this seems the only SMA that’s worthwhile. And it does closely track the index. One other benefit, if you are inclined, is your SMA advisor who we have used on a few occasions. Lastly, you can then ignore the TLH discussions.

[Oilcans]

We just came home from an appointment with our Fidelity Financial Consultant. She also suggested we invest $500,000 into the Intermediate Municipal Strategy with their fee at 0.40%. She said this was a new program with Fidelity beginning October 2017. Anyway I don't have much to offer but it has got my attention and am just beginning to research this program. We have a follow up appointment with her in three weeks. I will be watching BH periodically to see if others have pro's or con's on the program.

Thanks.

[Theseus]

Thesesus - I there a way to check the past performance of some of the fidelity SMAs?

My advisor was able to show me when I met with him. He even showed me return of another client and how much capital loss they had incurred while the value of the account was very very close to S&P 500 return. But I am not able to find performance data on the Fidelity website. The one I invested in is Fidelity® Tax-Managed U.S. Equity Index Strategy. https://www.fidelity.com/managed-accoun ... s/overview

I know it is a very short timeframe to make any judgement, but I must say I am pleased so far. Value of my investment is same as if I had invested in S&P index fund but I already have 5%+ capital loss for the year.

[MittensMoney]

It only seems worthwhile for folks who don't know how or can't be bothered to effectively tax loss harvest throughout the year, no?

[arf1410]

So if one had a chunk of $XXX that one was confident could remain untouched, and left for one heirs, that tax loss harvesting, resulting in a lower cost basis, would be fine, because heirs would get a stepped up cost basis on death?

[MotoTrojan]

It only seems worthwhile for folks who don't know how or can't be bothered to effectively tax loss harvest throughout the year, no?

No. My impression is that they are replicating the index and harvesting individual companies while maintaining overall representative exposure to sectors/index. Thus losses are harvested even if the index never has a down day.

This is impractical without a large enough portfolio to hold a diverse single stock replication.

[The529guy]

High minimum investments such as $500K are required with not-outrageous annual asset management fees of for example 0.4% for munis.

But is it really "not-outrageous"? An annual 0.4% AUM fee on $500,000 is $2,000. That would buy a lot of tacos.

[Theseus]

It only seems worthwhile for folks who don't know how or can't be bothered to effectively tax loss harvest throughout the year, no?

No. My impression is that they are replicating the index and harvesting individual companies while maintaining overall representative exposure to sectors/index. Thus losses are harvested even if the index never has a down day.

This is impractical without a large enough portfolio to hold a diverse single stock replication.

That is exactly what they are doing. I have seen transactions when index has gone up but they have taken a loss by trading a specific stock. They seem to maintain around 150 stocks. And replace a loser with another one in the same industry or sector.

[Theseus]

High minimum investments such as $500K are required with not-outrageous annual asset management fees of for example 0.4% for munis.

But is it really "not-outrageous"? An annual 0.4% AUM fee on $500,000 is $2,000. That would buy a lot of tacos.

Yes to me 0.4% AUM is rather too high when there are similar options at Vanguard. That's why I did not follow the advise to invest in their SMA for munis. I instead I invest in VWALX and VWIUX with 0.09 expense ratio. These are admiral shares so hard to beat.

[Earl Lemongrab]

Yes to me 0.4% AUM is rather too high when there are similar options at Vanguard. That's why I did not follow the advise to invest in their SMA for munis. I instead I invest in VWALX and VWIUX with 0.09 expense ratio. These are admiral shares so hard to beat.

Buying and managing index funds is not a "similar option". The similar option at Vanguard would be the PAS at 0.3%. But that doesn't have the extra TLH of this plan.

[sitout]

Thanks a lot for the awesome comments. For a $500K investment (the required minimum for the Fidelity/Breckinridge SMA for munis), Theseus’ alternative of Vanguard’s VWALX and VWIUX with a 0.09% expense ratio saves about $1500/year over the Fidelity/Breckinridge SMA 0.4% management expense for munis (without considering the state tax savings available with the Fidelity/Breckinridge option but not with those Vanguard funds). If these investments provided a 3% yield (they currently provide a bit less), that $1500 differential would be 10% of the annual yield.

On the other hand, as Earl Lemingrab noted, one can argue these are not equivalent products. Diversification is of course good. I am currently grappling with the idea that infusing a more actively managed component into a larger index fund-type portfolio can be viewed as beneficial diversification notwithstanding the added cost of the active management.

[yobyot]

I may be both old-school and a curmudgeon but the fees are too high and the fact that Fidelity is pitching this to numerous clients (it's the only thing they've pitched to me in three years) tells me that there's a push on inside the firm to up revenue from stubbornly self-directed fee-sensitive folks like me. One thing that turned me off is that the pitch I got described the managers are their institutional investment folks. What institutional manager is gonna give a second thought to a $500K investor? You'd just be a minnow among sharks.

[MotoTrojan]

I may be both old-school and a curmudgeon but the fees are too high and the fact that Fidelity is pitching this to numerous clients (it's the only thing they've pitched to me in three years) tells me that there's a push on inside the firm to up revenue from stubbornly self-directed fee-sensitive folks like me. One thing that turned me off is that the pitch I got described the managers are their institutional investment folks. What institutional manager is gonna give a second thought to a $500K investor? You'd just be a minnow among sharks.

I imagine it’s highlg automated so who cares whether they care about a $500K client less than a $500M one.

[Theseus]

Yes to me 0.4% AUM is rather too high when there are similar options at Vanguard. That's why I did not follow the advise to invest in their SMA for munis. I instead I invest in VWALX and VWIUX with 0.09 expense ratio. These are admiral shares so hard to beat.

Buying and managing index funds is not a "similar option". The similar option at Vanguard would be the PAS at 0.3%. But that doesn't have the extra TLH of this plan.

I am not familiar with Vanguard PAS. Under PAS, would they build a portfolio of Muni Bonds for you or invest money in one of the vanguard muni-bond mutual fund?

[yobyot]

I may be both old-school and a curmudgeon but the fees are too high and the fact that Fidelity is pitching this to numerous clients (it's the only thing they've pitched to me in three years) tells me that there's a push on inside the firm to up revenue from stubbornly self-directed fee-sensitive folks like me. One thing that turned me off is that the pitch I got described the managers are their institutional investment folks. What institutional manager is gonna give a second thought to a $500K investor? You'd just be a minnow among sharks.

I imagine it’s highlg automated so who cares whether they care about a $500K client less than a $500M one.

But if I wanted a robo process, I can get it a lot cheaper with a lot less at risk.

[MotoTrojan]

I may be both old-school and a curmudgeon but the fees are too high and the fact that Fidelity is pitching this to numerous clients (it's the only thing they've pitched to me in three years) tells me that there's a push on inside the firm to up revenue from stubbornly self-directed fee-sensitive folks like me. One thing that turned me off is that the pitch I got described the managers are their institutional investment folks. What institutional manager is gonna give a second thought to a $500K investor? You'd just be a minnow among sharks.

I imagine it’s highlg automated so who cares whether they care about a $500K client less than a $500M one.

But if I wanted a robo process, I can get it a lot cheaper with a lot less at risk.

There are no other robo services I know of that replicate the S&P500 while harvesting individual companies for 40bps. Know of one?

[JohnFiscal]

Back in 1998 via a job layoff, one of the benefits I was presented with was the "opportunity" to invest some of the 401K proceeds into SMAs through a particular firm, which offered perhaps 50 different SMAs offered by different advisory firms. I thought this was great and even took cash from some of individual IRA accounts to put in as well. As this was long ago, and due to the special situation, we could "buy in" with $100K into each SMA, normally they were more like $250K. I actually believe that I had read about these in Barrons magazine only a year or two before.

I kept these up for about 5-6 years. I'm not certain that it was worthwhile but I could not really speak to the returns and the expenses. I was annoyed at not being able to follow the accounts in the newspapers like a normal stock or mutual fund. Every time there was a transaction I would get confirmations in the mail; it was really paper information overload, without any real knowledge. I came to my senses and closed both SMAs and put all the money back into my mutual funds (Vanguard and, at that time, Longleaf Partners Fund). I have been very happy ever since using mutual funds. For comparison, I have around $1.75 Mil in funds (stock and bond) and no desire to go back to the SMOs. I don't believe that they really hold any potential to give me better returns.