For those who find themselves with less
and less time to oversee their investments, the managed investment account (MIA) offers the dual benefits of
institutional money management expertise
and the ability to limit downside risk.
“The task of managing assets becomes
more complex and demanding as investors
accumulate assets,” says John Nave, president of Brentwood Advisors LLC. “This is
compounded by the fact that as they get
older, there’s less room for error.”
Smart Business spoke with Nave about
what makes MIAs especially relevant in
today’s investment marketplace and how different types of advisory services can influence investment success almost as much as
the types of investments selected.
How does an MIA work?
Investment houses create custom asset
allocation models with specific investor
goals and objectives in mind, and then select
institutional money managers based on their
expertise overseeing the asset classes specified. These models have been proven and
refined over time, but until relatively recently,
some of the very best simply weren’t accessible to ‘average’ individual investors. They
were offered exclusively to managers of huge
pension funds and other institutional-type
investors. Now, by creating a distribution network of select local advisory services to offer
MIAs, investment houses like SEI, Genworth
Financial and others are able to pool individual investor money and provide that same
institutional investment expertise to average
investors. Local advisory services provide the
front-line investment advice and expertise
necessary to create a custom asset allocation
model for the individual investor. Based on
that model, they then help ‘cherry pick’ the
best institutional money managers available,
oversee a continual process of balancing and
rebalancing over time, and ensure that the
investments selected in any managed investment account are correctly matched to the
individual investor’s goals and objectives. For
this reason, the role of the front-line adviser is
critical, since each MIA has its own unique
asset allocation mix and since managed
investment accounts are simply one of many
choices available to consider, along with other types of investment vehicles and
approaches (depending on your unique individual circumstances).
What makes MIAs so timely?
The biggest selling point of the MIA is how
it protects the investor’s downside. The current investment climate is obviously volatile,
and protecting downside risk has become
more important. Also, those who have accumulated wealth over a long period don’t want
to see it wiped out overnight. Risk-averse
investors are always the first to see the benefits of extreme diversification through MIAs.
As confidence in market performance continues to erode, a much broader range of
investors is starting to take a closer look at
what MIAs have to offer — not just those
who are in more risk-averse investment life
cycle stages. Unfortunately, many investors
simply fail to recognize the need for or benefit of MIAs when the market is up — everybody’s a genius when everything is up. When
markets fall, more investors are caught off-guard or are in denial and don’t start losing
their appetite for high-risk investments until
it’s too late. When the ups and downs become
more volatile, and you have a limited amount
of time to keep your eye on what’s going on, an MIA protects your downside and provides
greater peace of mind.
Who are MIAs not suited for?
The knock on MIAs — to the aggressive
investor, at least — is that your upside may
be limited. You don’t get the full gain when
the market is up because your assets are allocated to minimize risk. But, that’s a trade-off
with an upside: In a down market, you’re protected, especially now, as the market continues to be searching for a bottoming-out point.
Investors who are solely focused on gains
simply may not have the patience for the MIA
approach. Even so, they might be wise to put
at least a portion of their available investment
assets into some kind of MIA, as a sort of
insurance policy — a hedge in case the market takes a turn for the worse.
Do different types of investment and advisory services influence the results differently?
The key is for the local advisory service to
have as many tools in the toolbox as possible.
Some investment services offer their own
proprietary funds, and there is always the
danger — be it perceived or real — of internal bias favoring the services’ own proprietary product. They have a lot tied up in it, so
it’s only natural that they are going to have a
vested interest in promoting it. A proprietary
fund cannot be the best choice in all situations. Investors need to be aware and cautious when approached about any proprietary offering, to make sure it is actually suited for their situation. With an MIA, the thing
that works in your favor is that the costs are
minimized (shared), the best money managers are custom selected to match your situation and the front-line advisory service that
you work with doesn’t come out ahead
unless the investment grows and you come
out ahead. The local advisory service and the
investment client are both on the same side
of the table, as it were. You don’t have the
potential conflict of interest that you might
have with a proprietary fund, and you don’t
have the incentive to transact in order to generate transaction fees that you have with brokerage firms and trading houses.
JOHN NAVE is the president of Brentwood Advisors, LLC. Reach him at (412) 308-2095 or [email protected].