Bucking the current trend to lower the amount of money investors must initially pony up to qualify for a separately managed portfolio, Fenimore Asset Management (FAM) of Cobleskill, N.Y., has done just the opposite. In June, it raised the minimum it accepts for separately managed accounts to $1 million from the previous $750,000 level.

An attempt to reach deeper into the wallets of a broader range of wealthy individuals has led many mutual fund companies to lower the minimum amount of assets they accept under separately managed accounts. In many cases, those minimums have fallen to only $50,000 or $100,000, and in a few cases to as low as $25,000.

This is not the first time Fenimore has raised the minimum on its separate accounts. A decade ago, the firm offered separately managed accounts to investors with as little as $100,000, said Herb Shultz, president and CEO of Fenimore. "Raising the minimum allows us to maintain quality of service for our clients," he said. Those services include three full-time portfolio managers who work exclusively with private clients, he said.

For those prospective clients who cannot quite meet the minimum separate account requirement, Fenimore gently reminds them that it also manages a pair of mutual funds using an identical value investment philosophy, Shultz said.

Fenimore, which manages about $430 million in separate accounts for some 400 wealthy clients, also manages the $587 million FAM Value Fund and the $60 million FAM Equity-Income Fund.

"If we didn't have the mutual funds, the decision to raise the minimum would likely have been affected," Shultz said.

Of course, changing the house rules also allows Fenimore to break those same rules in certain circumstances. "Minimums are guidelines," Shultz said. "It's not like we wouldn't consider someone with assets under $1 million."

Despite raising its separate account minimum, Fenimore isn't the least bit shy about conversely slashing minimums on its mutual funds.

In 2000, the firm cut the minimum initial investment for the value fund by 75%, from $2,000 to $500, and the equity-income fund's required minimum by 80%, from $10,000 to $2,000. The temporarily lower minimums were part of a promotional program the company tested two years ago to entice members of the local community to give a "Gift of Shares" to a graduate or newlywed couple, said spokeswoman Susan Lhota. The campaign did so well that Fenimore decided to make those lower fund minimums permanent, she said.

Whether an asset management company decides to inflate or slash its separate account minimum may largely depend on the firm's roots. Firms with histories tracing back to crafting and marketing mutual funds have often secondarily entered the managed account industry, and typically set an appropriate, but often lower, minimum hurdle.

On the other side of the spectrum lie those firms with roots planted firmly in managing money for institutions and high-net-worth clients. For these firms, mutual funds are often secondarily created as a way to service the needs of smaller investors.

In Fenimore's case, the firm began managing the assets of trusts, endowments, foundations and retirement plans, as well as high-net-worth individuals.

In 1987, the group's flagship FAM Value Fund was created to accommodate the friends, family members and referred associates of current Fenimore clients who didn't meet the separate account minimum, Shultz said. Fenimore didn't launch the equity-income fund until 1996.

According to the Money Management Institute (MMI), a Washington, D.C.-based trade group for the managed account industry, as of March 31, managed account assets totaled $413.5 billion, up 156% from the $161 billion in managed accounts at the end of 1996. Although industry predictions vary, MMI expects managed account assets to grow to more than $2.5 trillion by 2010.

While that growth rate far outpaces the current growth rate of the mutual fund industry and has made many fund advisors salivate, it doesn't mean the fund industry will crumble, said Philadelphia-based mutual fund consultant Burton Greenwald.

"Separately managed account assets now represent less than 10% of the mutual fund industry's $7 trillion," he said. But based upon even modest projections of net new money, reinvested dividends and conservative appreciation figures, "the fund industry will probably have $15 trillion eight or nine years out," he said. If the fund industry does achieve this growth and separate account assets reach $2.5 trillion, separate accounts will represent 16% of the fund industry's assets.

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