A managed account is a type of investment account that is owned by the investor. It is managed by someone else who is a professional and responsible for the account. The owner of the account can be an individual investor or retail investors. The account is managed by a professional who is a good expert at the subject matter. A professional manager is hired by the inventor who will take care of the trading account.
The professional manager will use his expert knowledge to make investment-related decisions for the individual investor. The professional manager will consider the investor expected returns, needs of the individual investor, risk-bearing capacity and asset management. Managed accounts are used mostly by rich and affluent investors.
Managed account is a portfolio of stocks/bonds. It is sometimes a mix of both which are maintained by the professional. The investor appoints a manager to oversee the accounts on a day to day operational basis so that the long term goals can be achieved.
Managed accounts are for wealthy individuals who can get access to money managers. It is a facility for high net worth individuals who can customize their requirements and get tax efficiency with a professional fee charged against their services.
How does it function?
All the financial assets like cash or property titles or assets categorised under a managed account. The professional investment manager will have the right to deal with the assets. The manager has the right on purchases and sales of assets, without the approval of the client. The manager will provide the best services so that investors will reach their financial goals. If the manager will not act in the best interest of the client then they may have to face civil charges or sometimes criminal charges as well.
The professional will charge a fee for their services. This fee is generally called the manager’s annual fee. It is calculated as a percentage of Assets under Management (AUM). The fees will range from mostly average around 1% to 2% of the assets under management. Based on the size of the assets the discount will be provided by the managers. As the investment expenses, these fees and charges will be tax deductible.
With the onset of the technology the investors are provided by the robo advisors. These robo advisors are digitally enabled to provide automatic services. They collect the data and logically analyse with the predefined pattern inbuilt in the system. Without human intervention they provide the support to investors.
Mutual funds and Managed accounts
The similarity between Managed accounts and mutual funds is that both are actively managed pools. These portfolios get invested through a variety of classes of assets. Mutual funds are a type of managed accounts and companies will hire a manager. This manager will have a keen observation and monitor the investment portfolio. Based on the funds objective the manager will make changes in fund holdings.
Managed accounts and mutual funds are monitored by professional managers. Managed accounts are personalised investment portfolios which are driven for special objectives, achieve specific goals, meet desires of account holders. The mutual fund is about meeting the fund investment objective and expected returns.
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The investor will allocate funds to the managed account. The manager will have the right to purchase and put order for the shares and securities thereby building a portfolio. The owner of the shares/securities will instruct the manager to do trading activity and produce best returns. The factors such as risk tolerance and objectives of investments are the main areas the managed account manager will look into. A percentage of the fund will be owned by the investor in the mutual fund but not the total mutual fund portfolio.
Advantages and disadvantages of Managed account
Managed account is a way to professionally manage your investments. It is best suited for those who have very little knowledge on what funds to select and where to invest funds appropriately. It provides real time information and best returns on investments. The advantages can be further explained as below.
- Subject knowledge
- Disciplined process
- Personal advice
- Efficient management
- Risk and reward
1. Subject Knowledge
There are many assets and funds to invest into, the expert industry knowledge of the managed account professional will make the right investment and portfolio management will be effective. The financial advisor will have good knowledge and understanding which is the best asset to invest and categorically fit with historically best performing funds.
2. Disciplined process
Since these are professionally managed portfolios the manager will follow an algorithm or a systematic approach with a method during fund allocation. There is no point of guess work during the fund allocation method.
3. Personal advice
Different individual investors have different goals so based on the needs of individual investors personal advice is provided. The ethical integrity of the manager and the personalised services will be given to the investors.
4. Efficient Management
For a better balance with risk management and rewards a diversified portfolio is provided which will result in efficient management. Since the managed portfolio results in efficiency the specific goals of the investors will be achieved.
5. Peace of mind
The main objective of investment management is assigned to the professional. The risk is diversified and returns are systematically targeted. As all the risk is shared and returns are anticipated there is no stress nor any anxiety for looking into the market fluctuations. The rise and fall of the numbers will not have much stress on the investor. Professionals handle the volatile market situations they will create a portfolio which will provide rewards and reduce the risk. You can gain more self confidence, as professionals will handle the portfolios.
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Disadvantages of Managed account
- The managed accounts require higher contributions and small investors cannot afford it.
- The investments of the controlled accounts and the assets may take several days for acquiring and also selling them is a time consuming factor.
- Compensation for managed portfolios is higher and it has a significant impact on the net returns.