Managed Account

Managed Account Definition

Managed account refers to a customized investment account managed by a professional investment manager on behalf of an investor. The manager creates a portfolio of investments keeping in mind an investor’s financial needs and goals.

Managed funds that pool money from different investors hardly allow for any customization. In managed accounts, an investor owns all the assets in the account and is transparently informed about their performance. The investor also holds the right to make investment decisions.

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Key Takeaways

How Does Managed Accounts Work?

How to Start Investing in a Managed Account?

  • Before you start investing in this service, select a professional money manager with ample experience and exclusive training to ensure you get excellent investment advice. In the U.S., money managers are regulated under the U.S. Investment Advisers Act of 1940 and the U.S. Securities and Exchange Commission (SEC).
  • For decades, money managers have managed the funds of wealthy families and institutional pension plans. The average investor could not use their service because of the high minimum investment requirement that was normally around $1,00,000 or above. The amount has gone down significantly over the years, and it varies depending on the type of account.
  • Moreover, the transactional fee was also very high. The service fee that is charged annually is calculated on the investment amount. Normally, it is 1-2% of the funds under management. Additional charges include transaction and trading charges. The fee has also gone down over the years. Besides, in some firms, the charges are negotiable.

Examples

  • Suppose a businessman named Adam Fernandez opens a managed account having $2 million of assets and hires Giselle Ray as his money/investment manager. In this scenario, Giselle’s primary job responsibility is to manage Adam’s investments in the account as per his financial needs and goals.
  • Giselle undertakes transactions on his behalf suited to Adam’s financial goals. However, she can’t do anything tantamount to breach of contract. So, as long as she successfully manages the assets as per the terms of the contract, it’s a win-win for both Adam and Giselle.
  • Let’s take an example from the real world. Based on Cerulli Associates’ findings, this report talks about how managed accounts grew at 13.1% during the second quarter of 2020. The industry assets improved to 7.4% from 2019’s $6.8 trillion.
  • Moreover, apart from Forex money managers, some popular managed accounts providers include Fidelity, Citigroup, and Blackrock.

Types of Managed Accounts

The terms and services offered under different types differ according to firms. We have provided a basic understanding of the types, with the major ones listed below.

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#1 – Individually Managed Accounts (IMAs)

  • IMAs are customized share portfolios built and managed by a money manager on behalf of an investor.
  • An investor can include or exclude certain shares according to his preferences and needs from the manager’s model portfolio.
  • IMA is mostly suitable for those with $500,000 or more. IMAs cater to the personalized goals of an investor.

#2 – Separately Managed Accounts (SMAs)

  • SMAs are based on model securities portfolios available with an investment firm. It is a product-based service.
  • The model portfolio is an assortment of securities owned by the investors. Different models offer different benefits. As such, clients need to open many separate accounts if they want to invest across different portfolios.
  • SMAs offering firm select model portfolios as per the needs of the client. A professional portfolio or money manager manages them, but the client is regularly reported about the performance of the assets.
  • An example is of Fidelity’s separately managed accounts offering model portfolios with varying features. Among many types, one comes with higher returns than the S&P 500® Index while another offers an assortment of different asset classes such as bank loans, stocks, bonds, etc.

#3 – Managed Discretionary Accounts (MDAs)

  • MDAs are discretionary investment accounts that permit a money manager to trade investments without the investor’s approval for each transaction.
  • The investor must sign a discretionary agreement with the manager setting limits regarding trading in the account the manager must adhere to.
  • Money managers charge higher fees for MDAs as they have to handle every transaction and decisions, unlike non-discretionary accounts.

#4 – Unified Managed Accounts (UMAs)

  • UMAs are investment accounts that permit a money manager to manage various investment assets such as mutual funds, bonds, ETFs in a single account. Unlike SMA, where the client has to open separate accounts, UMA unites them all.
  • UMA enables an investor to compare the performance for different investments simultaneously.

Frequently Ask Questions (FAQs)

#1 – Is managed account different from a brokerage account?

A managed account involves a professional investment manager who holds discretionary rights to take investment decision on behalf of an investor. The decisions are attained keeping in mind the investor’s financial goals. The service is more attainable by HNWIs. With a brokerage accountBrokerage AccountA brokerage account is a taxable investment account in a brokerage company where a person deposits its assets and instructs the company to trade in shares or bonds on their behalf. In addition, the company deducts some brokerage or commission.read more, the investor controls the buying and selling of investments.

#2 – Are managed accounts worth my time and money?

Yes, they indeed are if you don’t have the time and expertise to oversee your investments. Managed accounts allow a diverse investment portfolio, transparency and hassle-free investment by a professional on your behalf to achieve your financial goals efficiently.

#3 – Why should I invest in SMAs (Separately Managed Accounts)?

As an investor, SMAs offer you a separate account or model portfolio of securities according to your needs while you enjoy the benefits of investing in a mutual fund. Here you own the securities in your separate account, unlike in mutual funds where you hold units in the fund.Since you have direct share ownership of securities, you enjoy greater transparency and tax efficiency.

This has been a guide to What is Managed Account and its Definition. Here we discuss how it works along with types, examples and how to start? You may also have a look at the following articles to learn more –