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Income Tax Management
The potential for tax efficiency is another compelling advantage of a separately managed account over a mutual fund of the same strategy. To illustrate, a mutual fund may pass along built-in taxable capital gains to the investor that accumulated before the investor purchased the shares. If you buy a fund late in the year, you may be taxed on a fund distribution that reflects transactions that occurred before you bought the fund.
However, because the portfolio in a separately managed account is assembled from scratch, you don’t inherit anyone else’s tax consequences. You pay tax only on any net realized gains you actually have received.
In addition, the manager can also work with your tax advisor to employ loss-harvesting techniques if appropriate. Under this strategy your manager sells positions that have gone down in value to capture the tax loss. The position is either replaced with another, similar security or repurchased after the 30 day wash sale period has passed.
Finally, separately managed accounts may enable investors to more easily carry out certain gifting strategies for estate planning and tax purposes. WrapManager’s advisors are happy to work with you and your tax advisor to discuss estate planning and tax strategies.
Competitive Fees
WrapManager charges an all-inclusive fee of 1.5% for separately managed accounts. This fee is very competitive. Some firms charge as much as 3%. This management fee is paid quarterly and includes commission costs. You pay no commissions on trades in our managed accounts.
Depending upon the ownership of the account and underlying investments in the separately managed account, the fee paid may be tax deductible to the degree permitted by law. You are free to terminate the relationship at any time without penalty. Any unused portion of the fee will be returned on a pro-rata basis.
Mutual funds charge similar fees. Front end loads are obvious, but even no-load funds charge management fees that are sometimes less visible. Other fees include as 12b-1 fees, back end sales loads, and redemption fees. These fees vary by fund. Unless you read the prospectus carefully it can be difficult to understand the full cost of owning a mutual fund. A managed account fee is competitive with most mutual funds.