Scandal-Proofing With Separate Accounts

Furthermore, as with high-end electronic items such as TVs and VCRs, products that are originally targeted toward the upper classes eventually trickle down to the burgeoning masses.

"The trend towards managed accounts preceded the mutual fund scandal," says Christopher Davis, executive director of the Money Management Institute, an organization representing the separate account industry. "All things begin with the high-net-worth client and work their way down."

Once you get past the minimum, what are the unique advantages of separate accounts?

Investment advisers say customization is a huge plus. The portfolio of stocks and bonds in a separate account can be tailored to the client's needs. If an individual wants to avoid sin stocks such as cigarette manufacturers Altria(MO Quote) or R.J. Reynolds(RJR Quote), they can be left out of the portfolio. If the individual thinks sinning means winning, then he or she can put them back in.

"Separate accounts are more personal than mutual funds because they take into account your personal situation," says a money manager based in Connecticut. "For example, if you have a client who is an executive at McDonald's, you can lighten up on fast food and restaurant stocks."

Personalization also means tax-efficient trading, a problem that mutual fund managers have difficulty solving.

In a separate account, money managers can time a client's trades for optimal tax treatment based on the client's specific needs. They can take into account a client's cost basis and try and net out the huge capital gains that create huge tax bills in April.