Not too long ago it was BMWs, then cell phones. Now individually managed accounts are the rage for those who have come into a little money and want to bend your ear about it.

These so-called managed accounts are customized stock portfolios put together by one or more money managers working in tandem with your broker or financial adviser. You used to need at least $500,000 in liquid assets to have one, but minimums have recently fallen below $100,000.

Salomon Smith Barney

recently lowered its account minimum to $50,000 (though you still need to have $100,000 invested with the firm).

Lockwood Financial

of Malvern, Pa., will open a managed account for just $25,000.

If your money has been stashed in staid mutual funds, having an individually managed stock account can be a great ego boost. But the ostensible benefits of managed accounts -- tax-managed selling, a straightforward fee structure and the money manager's personal attention -- are more illusory than real for most small-time investors. In other words, managed accounts may make better cocktail party chatter than financial sense.

Here's how managed accounts work for those with $500,000 or more to invest:

After helping you clarify your financial goals and determining your risk tolerance level, your broker or financial adviser will provide you with a list of one or more money managers who specialize in the investment objectives that best fit your profile. For example, your account may be split among three managers, one handling the small-cap portion of the portfolio, another handling large-cap stocks and the third investing in foreign stocks.

Expect to pay anywhere from 1% to 3% of assets annually for management and transaction fees, including compensation for the financial adviser or broker. (The lower your investment, the higher the percentage you'll pay.)

Now let's look at the reality for investors with accounts of less than $500,000.

Diversified Portfolios for the Little Guy

The pitch:

Have your own diversified stock portfolio just like your rich Uncle Bentley.

The reality:

Rich Uncle Bentley has enough money to buy the dozens of stocks he needs for a diversified portfolio. You don't. A large-cap portfolio in a typical managed account may be made up of 20 to 30 stocks. Small-cap portfolios can range from 15 to 50 stocks. You can't take meaningful positions in dozens of stocks with just $25,000 to spend.

For $25,000, Lockwood Financial actually assembles a mixed portfolio of stocks, bonds and exchange-traded index funds. Not exactly the stock portfolio you were hoping to brag about. And not necessarily worth the extra layers of management. "Lockwood found a way to make an index fund much more expensive," says one financial adviser.

In Lockwood's defense, a spokeswoman says investors in these low-minimum accounts still get an individualized investment portfolio and can choose to exclude stocks they don't want to own. The exchange-traded index funds provide diversification while avoiding some of the tax drawbacks of traditional mutual funds. (For more on the difference between exchange-traded funds and mutual funds, see Dagen McDowell's

recent story.)

Tax Sensitivity

The pitch:

A number of factors, none of which you control, can trigger a taxable distribution by a mutual fund. But with a managed account, your money manager will take into account your tax situation when deciding what shares to sell and when.

The reality:

Kacy Gott, a financial planner at

Kochis Fitz

in San Francisco, says he hasn't seen any evidence managed accounts' tax sensitivity is real. In fact, he says, other advisers have told him it's a good sales pitch, but that's it. "We wonder how much control

investors really have over the taxes," he says.

Besides, while a buy-and-hold strategy can minimize your immediate tax bill, holding on to your winners also runs the risk of throwing your portfolio out of whack. Many investors find it hard to sell stocks and realize gains. But if they don't, they're not making sound investment decisions, Gott says. Paying small amounts of taxes over time makes it easier to cut the ties when you have to rebalance your holdings. "You're going to pay the taxes sooner or later, why not pay them now and use your best investment ideas?"

No Hidden Costs

The pitch:

There are no hidden costs in managed accounts, says Tom McClutchy, a financial consultant at Salomon Smith Barney in Boston. Investors pay an agreed-upon percentage of assets annually, and that covers everything. But for mutual funds, in addition to expense ratios that average 1.37% annually, according to

Morningstar

, there are hidden costs. Among them: trading costs, which aren't included in the expense ratio; and soft-dollar arrangements, where, for example, funds offer to send a certain amount of trading business to a Wall Street firm in exchange for research services.

The reality:

What do you actually get for your 1% to 3% managed account fee? Many managed accounts are run according to computerized profiles. A money manager is likely to stick you in the profile that fits you best, and you'll have the same portfolio as everyone else in that profile, save for a few stocks you specifically request be excluded from your portfolio. So much for personal attention to your needs. In reality, it's the advisers who are in contact with the money managers and their organizations, says McClutchy.

While $50,000 may be a lot of money to you, it's pocket change to these managers, and you shouldn't expect they'll have the time to sit down and listen to your investment philosophy over a long lunch. They may not even oblige your individual request for changes in your portfolio.

Why Not Mutual Funds?

Mutual funds are considered to be investment vehicles for the average investor. But if you have a managed account, you can talk about "your" money manager at cocktail parties, says Howard Yasgur, an adviser with

McDonald Gradison

in Cincinnati. For some investors, this is really important. But bragging rights with these low-minimum accounts come with a high cost: loss of diversification.

"Individually managed accounts are not suited to $50,000 accounts," says Yasgur. That chunk of dough is better suited for three or four mutual funds. You can open a mutual fund account with as little as $50, making diversification among sectors more attainable. Mutual funds -- index funds in particular -- are an efficient investment vehicle. And for actively managed funds, you can get top talent at bargain prices. Hey, isn't that something to brag about?

Stacie Zoe Berg, author of The Unofficial Guide to Managing Your Personal Finances and The Unofficial Guide to Investing in Mutual Funds, is a freelance journalist whose work has appeared in the Washington Post, The Washington Times, trade magazines, Consumer Reports and on financial Web sites.