Managed Account

What Is a Managed Account?

A managed account is an investment account owned by an individual or institution in which a professional investment manager makes buy and sell decisions on the client’s behalf. These accounts are customized to the client’s objectives, risk tolerance, and tax situation, and are commonly used by high-net-worth individuals and institutions seeking tailored portfolio management and greater transparency.

How Managed Accounts Work

• Ownership and control: The client owns the underlying securities in the account. The manager has authority to trade in alignment with the client’s agreed objectives.
• Fiduciary duty: Managers typically act under a fiduciary standard, required to put the client’s interests first.
• Reporting: Clients receive regular account reports detailing holdings and performance.
• Liquidity and transactions: Executing large or specific trades in a managed account can take days to fully implement; managers can time trades to try to optimize tax outcomes for the account owner.

Costs and Minimums

• Minimum balances: Many managers require significant minimums—common thresholds range from $50,000 to $250,000 or more—making these accounts more common among wealthier investors.
• Fees: Managers usually charge an annual fee based on assets under management (AUM). Typical ranges are about 1%–2% of AUM, with tiered discounts for larger portfolios.
• Tax treatment of fees: For most individual taxpayers, investment management fees are generally not deductible; check current tax law or consult a tax advisor.

Robo-Advisors: Automated Managed Accounts

Robo-advisors are digital platforms that provide algorithm-driven portfolio management with minimal human involvement. They offer:
* Lower fees (for example, around 0.25% of AUM or similar).
* Much lower minimums—sometimes as little as $5 to start.
* Automated rebalancing and tax-loss harvesting features on certain platforms.

Comparing Managed Accounts and Mutual Funds

Both are professionally managed, but they differ in structure, ownership, flexibility, and tax implications.

Key differences:
* Ownership
* Managed account: Client directly owns the securities.
* Mutual fund: Investor owns shares of the pooled fund, not the underlying assets.
* Customization
* Managed account: Portfolio is tailored to individual goals, restrictions, and tax needs.
* Mutual fund: Managed to the fund’s stated objectives for all shareholders; no personalization.
* Tax control
* Managed account: Manager can time trades for tax efficiency for the individual owner.
* Mutual fund: Investors cannot control when fund managers realize capital gains; distributions can create taxable events.
* Fees and accessibility
* Managed account: Higher typical fees and higher minimums.
* Mutual fund: Lower expense ratios and lower entry amounts, making them more accessible to retail investors.
* Liquidity
* Managed account: Transactions for large or specific assets may take longer.
* Mutual fund: Shares are usually purchasable and redeemable daily (subject to fund rules).

Pros and Cons

Pros of managed accounts:
* Personalized investment strategy and tax management.
* Full transparency of holdings.
* Direct ownership of securities.
* Flexibility to implement restrictions (e.g., avoid specific industries, concentrate positions, charitable strategies).

Cons of managed accounts:
* Higher minimum investments and fees that can reduce net returns.
* Potentially slower execution for large or complex trades.
* Less accessible for small investors compared with mutual funds or robo-advisors.

Considerations for Institutional Investors

Large institutions sometimes shift assets into separately managed accounts to gain:
* Greater customization and control over investment strategy.
* Daily valuation and transparency into holdings and fees.
* Potentially lower and more transparent fee structures compared with some outsourced vehicles (e.g., hedge funds).

Key Takeaways

• Managed accounts provide personalized, professionally managed portfolios with direct ownership of securities and the potential for tax-aware trading.
• They are best suited for investors who need customization and have the minimum capital to justify higher fees.
• Mutual funds and robo-advisors offer alternative managed solutions with lower minimums and fees but less personalization and tax control.
• Choose the structure that balances customization, cost, tax considerations, and liquidity for your financial goals.