Managed accounts in the form of IMAs, SMAs or MDAs are re-emerging as a more transparent, controllable, flexible and tax-efficient way of investing than managed funds, says John McIlroy executive director of Crystal Wealth Partners.
With full legal ownership of a ‘professionally managed’ portfolio of stocks resting with the investor under a managed account structure – unlike the pooled managed fund model – it has the potential to deliver superior after-costs and after-tax performance outcomes.
Given that investors retain beneficial ownership of the investments, there’s considerably greater flexibility in selecting appropriate tax accounting methodology to optimise their after-tax outcome, plus greater customisation of the overall portfolio to better suit their personal preferences and goals.
The complete separation of an individual (managed account) portfolio – from other investors using this structure – means each investor’s tax position isn’t negatively compromised by the actions of other investors also engaged in the same managed account service.
Investors are directly entitled to all income and dividends, including franking credits arising from the investment held on their behalf. Considering investor preference for investing in direct shares, managed accounts are also proving to be a popular solution for SMSF trustees.
By using managed accounts, (all) investors avoid unrealised gains and losses of other investors that can arise within pooled structures. For example, managed funds may crystallise capital gains when selling assets to pay out investors who have redeemed from the fund, thereby potentially creating an after-tax cost to all investors. Through managed accounts, investors are able to individually manage the capital gains position of a portfolio and plan to offset gains against losses to minimise total overall investment related tax on a personalised basis.
For example, when investors partially sell a holding within a managed account structure they can determine which part of the holding is sold by nominating a preferred tax method, thereby potentially minimising total capital gains tax.
Editor’s notes
- A managed account can be operated in Australia under different names, including a managed discretionary account (MDA) or a separately managed account (SMA).
- Unlike a managed fund, the underlying securities/assets within a separately managed account (or portfolio) are owned, either directly or beneficially, by or for the investor.
- As a result, all tax issues connected with those assets rest with the investor, not the managed fund.
- The owners of a managed account include: Anyone over 18, SMSFs, companies, Discretionary Trusts, Unit Trusts, Charitable Foundations, Deceased Estates, and Private Mandates.
- A key function of a professional account adviser is exercising the discretion to alter a portfolio – to greatly improve overall portfolio management efficiencies -without prior reference to the client.
- Unlike managed funds which can be unwilling to divulge detailed portfolio holdings, managed accounts provide full transparency into portfolio assets held through centralised reporting.
Benefits of managed accounts over managed funds
Contacts
John McIlroy
Crystal Wealth Partners
(02) 8667-3046
0411 592 118
john@crystalwealth.com.au