What is the Subaccount Charge?
Subaccount charges are a kind of fee levied for the management of a subaccount by a bank or other financial institution. Subaccounts are basically accounted under larger accounts. Subaccounts can keep funds separate for accounting convenience or permit a variety of investment strategies within a broader portfolio.
Subaccount fees usually include payment to an investment adviser who initiates decisions around investment with respect to the subaccount. Also, the charge will include the cost of buying and selling shares and managing those trades. This is equivalent to the fee paid for the investment manager of a mutual fund.
How Does a Subaccount Charge Function?
Subaccount charges vary by organization and account value but in some unusual cases range from about 0.25 per cent up to 3.25 per cent annually. Firms include the amount they charge in the expense ratio of the fund for handling subaccount investments. We also include this detail in the prospectus of the fund and in statements of subaccounts.
Subaccounts can help a large firm keep track of their gains and losses. For example, a firm may hold multiple sub-accounts with a financial institution under one large account. Each of these sub-accounts typically covers one department of the company. It helps break gains and losses, so that leadership can track each department's efficiency and profitability easily.
Similarly, a person who is keeping an investment portfolio with a financial company in one account at times has several subaccounts within that portfolio. Assuming one subaccount is for real estate investments, for example, and the other is for property planning.
Subaccount Fees Applicable for Variable Insurance Products
Subaccount fees are a common feature of variable insurance products and enable a policyholder to invest in a variety of portfolios to increase the value of the future annuity payout of the policyholder.
However, the charged fees often have a significant impact on a portfolio's long-term prospects, with high fees having a negative impact on overall performance. This negative effect is analogous to how high management fees can reduce a mutual fund's overall growth.
