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 example, an investment advisor might have multiple subaccounts opened on behalf of their client, each being used for different types of investments. The investment advisor might then charge the client different fees, or subaccount charges, for each of these subaccounts.

Key Takeaways

  • A subaccount charge is a type of fee charged to a subaccount.
  • Subaccounts are essentially smaller accounts nested within a larger account structure.
  • They are used in investment management and variable insurance products, in which the client’s funds are being invested in securities that have different management fees.

How Subaccount Charges Work

Subaccounts are sometimes used by banks and investment managers to keep track of their clients’ assets and activities. For instance, a large company might have its checking account divided up into different subaccounts in order to keep track of the withdrawals and deposits of individual departments or subsidiaries. Likewise, for individuals, one investment portfolio might include several subaccounts for different types of assets.

Clients should carefully review their account and investment management agreements to ensure they understand the different fees charged for each type of subaccount. Although subaccount charges vary depending on the firm, they generally range from about 0.25% of the invested assets to as much as 3.25% annually in some cases. These details will be disclosed in the account’s signup or prospective documents, and should be included as part of the account’s overall management expense ratio (MER).

It is also important to keep track of how funds are reallocated between the subaccounts of a portfolio, since this can affect the overall fees charged on the account. For instance, an investment management client might be accustomed to paying only a 1% management fee on their investments. But if the investment manager reallocates assets from a relatively low-fee subaccount to one with higher subaccount charges, this could lead to an increase in the overall management fee.

Real-World Example of a Subaccount Charge

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

As with other types of investments, purchasers of these variable insurance products should be aware that the fees charged on these accounts can have a substantial impact on the long-term performance of their investments, with high fees curtailing potential investment results.