James Chen, CMT is an expert trader, investment adviser, and global market strategist.
Updated April 08, 2022 Reviewed by Reviewed by Thomas BrockThomas J. Brock is a CFA and CPA with more than 20 years of experience in various areas including investing, insurance portfolio management, finance and accounting, personal investment and financial planning advice, and development of educational materials about life insurance and annuities.
A separate account is an investment portfolio owned by an investor and managed by a professional investment firm—typically registered investment advisors (RIA). Although separate accounts are usually opened through a brokerage or financial advisor, they may also be held at a bank or opened with an insurance company.
Sometimes these accounts are referred to as separately managed accounts (SMA) or individually managed accounts.
A separate account is commonly utilized by institutional investors or wealthy retail investors who have at least six figures to invest and want to partner with a professional money manager to focus on a single, customized investing objective. In general, the minimum investment required to open a separate account can be $100,000 or more.
Money managers offer investors targeted strategies for their separate account assets. In a separate account, funds are not pooled with the investments of other investors like they are, for example, in a mutual fund. Investors can choose from a range of approaches in order to create a portfolio that is oriented towards their individual investment goals.
An RIA or portfolio manager is in charge of making investment decisions on a day-to-day basis. Typically, they are supported by expert analysts. Armed with discretionary authority over the account, the dedicated manager hired by the investor actively makes investment decisions pertinent to the individual, considering the client's needs and goals, risk tolerance, and asset size.
Managed accounts hold many benefits for the high net-worth investor but can be very expensive.
When considering whether or not to open a separate account, investors should educate themselves on the fee structures of professional money managers. While their fee structures vary, they can be very expensive. RIAs and portfolio managers' fees typically range from 1% to 3% of assets under management (AUM).
Separate accounts are also available to investors through insurance companies. Insurers offer investment products that can be kept separately from any general insurance investments. One example is a fixed annuity.
When you buy a fixed annuity, the insurance company decides how to invest your funds and provides you with a specific, guaranteed return at regular intervals. Because the policyholder is guaranteed a payout for a specified term or for life, fixed annuities are usually used to generate income for retirement.
Individual investors can open various other kinds of accounts that can be opened and managed as a separate account. For instance, many brokerages offer self-directed trading accounts that can be managed through an online platform.
In addition, individual retirement accounts (IRAs) are SMAs that are used by individuals to save for retirement. Checking accounts and savings accounts held at banks are also considered to fall under this category.