Subaccount Charge

What Is a Subaccount Charge?

A subaccount charge is a type of fee charged by a bank or other financial institution for the management of a subaccount, which is a type of account embedded into a larger account structure.

For instance, an investment advisor could have various subaccounts opened for their client, each being utilized for various types of investments. The investment advisor could then charge the client various fees, or subaccount charges, for each of these subaccounts.

How Subaccount Charges Work

Subaccounts are at times utilized by banks and investment managers to keep track of their clients' assets and activities. For example, a large company could have its checking account split into various subaccounts to keep track of the withdrawals and deposits of individual departments or subsidiaries. In like manner, for individuals, one investment portfolio could incorporate several subaccounts for various types of assets.

Clients ought to carefully survey their account and investment management agreements to guarantee they comprehend the various fees charged for each type of subaccount. In spite of the fact that subaccount charges shift contingent upon the firm, they generally range from around 0.25% of the invested assets to as much as 3.25% yearly now and again. These subtleties will be uncovered in the account's information exchange or prospective archives, and ought to be incorporated as part of the account's overall management expense ratio (MER).

It is likewise important to keep track of how funds are redistributed between the subaccounts of a portfolio, since this can influence the overall fees charged on the account. For example, an investment management client may be familiar with paying just a 1% management fee on their investments. In any case, in the event that the investment manager redistributes assets from a moderately low-fee subaccount to one with higher subaccount charges, this could lead to an increase in the overall management fee.

True Example of a Subaccount Charge

Subaccount charges are a common feature in variable insurance products, permitting policyholders to invest in different portfolios to increase the value of the strategy's future annuity payout. In this case, the individual investments might be housed in subaccounts, with various subaccounts carrying their own subaccount charges.

Likewise with different types of investments, buyers of these variable insurance products ought to know that the fees charged on these accounts can considerably affect the long-term performance of their investments, with high fees diminishing potential investment results.

Highlights

• Subaccounts are basically more modest accounts settled inside a larger account structure.
• They are utilized in investment management and variable insurance products, in which the client's funds are being invested in securities that have different management fees.
• A subaccount charge is a type of fee charged to a subaccount.