25. Fee-based Accounts

Fee-Based Accounts 25

Chapter Overview

In this chapter, you will learn about the various types of fee-based accounts, including both managed and unmanaged accounts.

Learning Objectives

1. Describe the advantages and disadvantages of fee-based accounts.
2. Compare the features, advantages, and disadvantages of various types of managed fee-based accounts.
3. Describe the various types of non-managed fee-based accounts.

Content Areas

• Overview of Fee-Based Accounts
  • Understand the fundamental principles and structures of fee-based accounts.
• Managed Fee-Based Accounts
  • Explore various managed accounts and their specific features and benefits.
• Non-Managed Fee-Based Accounts
  • Delve into non-managed accounts and how they differ from managed fee-based accounts.

Key Terms

Glossary of terms defined in this chapter:

• Discretionary accounts: Investment accounts where the broker or financial advisor makes decisions on behalf of the client.
• Mutual fund wraps: Investment portfolios consisting primarily of mutual funds, structured under a single encapsulated wrap.
• Exchange-traded fund wraps: Similar to mutual fund wraps but consist mainly of exchange-traded funds (ETFs).
• Overlay manager: A managerial role in multi-manager accounts that coordinates the various strategies and attempts to optimize the overall performance.
• Fee-based accounts: Accounts that charge a flat fee or percentage of assets under management, as opposed to commissions on transactions.
• Private family office: Financial advisory services tailored specifically for wealthy families managing substantial wealth and investment portfolios.
• Household account: A comprehensive investment account encompassing multiple family member financial needs under a single named account, simplifying family wealth management.
• Robo-advisor: Automated platforms that provide financial planning services with minimal human intervention based on algorithms and pre-set software strategies.
• Managed accounts: Investment accounts professionally managed by financial advisors or portfolio managers.
• Separately managed accounts (SMA): Accounts managed independently according to specific strategies tailored to each investor.
• Multi-manager accounts: Accounts utilized by employing multiple managers to diversify investment strategies and reduce risks.
• Unified managed account (UMA): An investment account drawing multiple asset classes and various investment strategies into one holistic account, often run by an overlay manager.

Section 25.3 Key Takeaways

• Advantages of Fee-Based Accounts: Such accounts often provide a more transparent and predictable fee structure, better alignment of investor and advisor interests, and typically access to a more personalized investment experience.

• Disadvantages of Fee-Based Accounts: They may entail higher overall costs in less active accounts and potential challenges in evaluating performance against benchmarks due to the bundles of services and fees.

• Managed vs. Non-Managed Accounts: Managed accounts can benefit from professional oversight focusing on active management while non-managed accounts depend on the account owner’s decisions, generally leading to lower fees but requiring more involved management.

Frequently Asked Questions (FAQs)

1. What are fee-based accounts? Fee-based accounts charge a consistent fee based on the assets under management rather than per-transaction fees.

2. How do managed fee-based accounts differ from non-managed ones? Managed accounts involve professional oversight and strategic management by financial advisors or managers, whereas non-managed accounts require the investor to make all strategic decisions.

3. What are the benefits of fee-based accounts? Benefits include alignment of the advisor’s interest with the client’s, potentially comprehensive financial services and advice, and avoidance of per-transaction fees.

4. What roles do overlay managers play in fee-based accounts? Overlay managers coordinate different investment strategies within multi-manager accounts to optimize performance and ensure cohesive management.

Charts and Diagrams

Types of Fee-Based Accounts Diagram

    flowchart TB
	    A[Fee-Based Accounts] --> B[Managed Accounts]
	    A --> C[Non-Managed Accounts]
	    B --> D[Discretionary Accounts]
	    B --> E[Mutual Fund Wraps]
	    B --> F[ETFs Wraps]
	    B --> G[Private Family Office]
	    C --> H[Household Account]
	    C --> I[Robo-advisor]
	    B --> J[Managed Account Types]
	    J --> K[Separately Managed Accounts]
	    J --> L[Multi-Manager Accounts]
	    J --> M[Unified Managed Account]

Glossary

Key terms have been defined in the glossaries provided and highlighted throughout the chapter in bold text to facilitate understanding and retention of their meaning.

Continuing through the remaining sections, the next chapter part will focus in-depth on managed fee-based accounts, addressing Individual account tailoring and portfolio management strategies.

In this section

• 25.1 Introduction
  An overview of the evolving fee-based account model in the securities industry, highlighting changes from traditional advisor/client relationships to asset-based fee structures.
• 25.2 Overview Of Fee-based Accounts
  A comprehensive guide to fee-based accounts highlighting their advantages, disadvantages, and the growing demands of high-net-worth clients.
  • 25.2.1 Advantages And Disadvantages Of Fee-based Accounts
    Learn about the benefits and drawbacks of fee-based accounts used in financial services, including financial planning and wealth management advantages as well as potential higher costs and extra fees.
• 25.3 Managed Fee-based Accounts
  Comprehensive guide to managed fee-based accounts, comparing their features, advantages, and disadvantages. Includes details on taxation, fee structures, and various service levels within managed fee-based accounts.
  • 25.3.1 Exchange-traded Fund Wraps And Mutual Fund Wraps
    A comprehensive guide to understanding exchange-traded fund (ETF) wraps and mutual fund wraps within managed accounts, explaining their structures, benefits, and management approaches.
  • 25.3.2 Advisor-managed Accounts
    Comprehensive guide on advisor-managed accounts in the Canadian Securities Course. Understand the benefits, types, and tax implications of advisor-managed accounts.
  • 25.3.3 Separately Managed Accounts
    A comprehensive guide to Separately Managed Accounts (SMAs) for Canadian investors. Understand the benefits, management structures, and roles of sub-advisors and overlay managers.
  • 25.3.4 Household Accounts
    Explore Household Accounts in the Canadian Securities landscape, detailing their structure, benefits, and the strategic allocation for optimal tax management across a family’s holdings.
  • 25.3.5 Private Family Office
    Learn about the structure, benefits, and operation of Private Family Offices for high-net-worth individuals.
  • 25.3.6 Documentation For Managed Accounts
    Explore comprehensive documentation for managed accounts, complying with IIROC rules, client agreements, and regular reviews. Learn best practices to ensure fair investment allocation and regulatory compliance.
• 25.4 Non-managed Fee-based Accounts
  Learn about the different types of non-managed fee-based accounts, understand their characteristics, and uncover their benefits and considerations.
  • 25.4.1 Full-service Brokerage Accounts
    Comprehensive guide on full-service brokerage accounts including their fee structure, benefits, criteria, and additional services.
  • 25.4.2 Self-directed Brokerage Accounts
    Learn about self-directed brokerage accounts, including direct guidance and robo-advisory services offered in the Canadian financial market.
• 25.5 Summary
  Overview of key aspects and frequently asked questions about fee-based accounts including their types, services offered, and regulatory requirements.