While separately managed accounts have gained popularity with affluent investors over the past few years, they do carry some major drawbacks, Wall Street Journal columnist Terri Cullen reports.

"They’re glorified mutual funds, only more expensive," Robert O'Dell, a financial adviser for high-net-worth clients with LVM Capital Management in Wheaton, Ill., told WSJ.

With mutual funds, performance is widely reported on. Investors can easily find out how their investments are faring. In fact, it’s the law that fund companies disclose how their holdings are faring. But with SMAs, there are no such laws. And while a new tracking system by Morningstar is addressing much of this problem, it will only evaluate SMAs deemed as "representative" by the financial advisers. So even that system won’t be perfect.

One of the benefits of SMAs is that they give a client extremely personal service. But access to a portfolio manager is usually reserved for the financial adviser or planner that helped the client open the SMA rather than the client him/herself. Being able to get right through to a human being handling your finances is a great advantage of SMAs, but it’s that adviser or planner that reaps the benefits of the close contact.

Another seemingly great but sometimes annoying feature of SMAs is the frequent updates investors receive. Often, the account statements, tax forms, etc., can add up to a huge and annoying stack of papers on an investor’s desk.

This is not to say that the cons outweigh the pros in the SMA industry, but it goes to show that not every investment tool is right for everyone.

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The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

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