What is Managed Account ?
- FINANCE
- quality
- Trust
A managed account is an investment account that is owned by an investor but managed by somebody else. The account owner can either be an institutional investor or an individual retail investor. A professional money manager hired by the investor then oversees the account and the trading activity within it.
Armed with discretionary authority over the account, the dedicated manager actively makes investment decisions pertinent to the individual, considering the client’s needs and goals, risk tolerance, and asset size. Managed accounts are most often seen among high-net-worth investors.
KEY TAKEAWAYS
One investor owns a managed account, which is a portfolio under the supervision of a qualified money manager that the investor has engaged. Money managers are paid a fee that is determined by a predetermined proportion of assets under management (AUM) and have the authority to require greater minimum investments in order to manage accounts.
A mutual fund is a type of managed account, but it is open to anyone with the means to buy its shares, rather than personalized for a particular investor.
MANAGED ACCOUNTS VS MUTUAL FUNDS
Mutual funds and managed accounts are examples of actively managed portfolios or pools of capital that make investments in a range of assets, or asset classes.
A mutual fund is technically a managed account. A money manager will be employed by the fund business to oversee investments in the fund’s portfolio. Depending on the goals of the fund, this manager may change the assets held by the fund.
Mutual funds were promoted as a means for the “little guy”—small retail investors—to experience and gain from professional money management when they were first actively marketed in the 1950s. This was a service that was previously exclusive to wealthy people.
PRO
- Customized managed accounts address the account holder's needs; mutual funds invest according to the fund's objectives.
- Investors in mutual funds have little control over when a fund achieves taxable capital gains, but trades in managed accounts can be timed to reduce tax liability.
- Managed account-holders have maximum transparency and control over assets; mutual fund-holders don't own the fund's assets, only a share of the fund's asset value.
CON
- Some managed accounts require five-figure minimum in funds; mutual funds demand much lower initial investment amounts.
- It may take days to invest, or de-vest managed account assets; mutual fund shares are more liquid and can be bought or sold daily.
- Managed account managers tend to charge high annual fees that impact overall returns; mutual funds' expense ratio fees tend to be lower.
Management Considerations
- FINANCE
- quality
- Trust
Professional managers are in charge of mutual funds and managed accounts. Investment portfolios that are tailored to the individual risks, objectives, and requirements of the account holder are known as managed accounts. Meeting the fund’s investment and return goals is the main goal of mutual fund management, which is done on behalf of the numerous fund holders.
In a managed account, the manager buys and adds actual shares of securities to the account portfolio while the investor distributes monies. The securities are owned by the account holder, who can give the manager instructions on how to trade them.
Mutual funds, on the other hand, are categorized not by personal preferences but rather by the financial goals of the funds and the risk tolerance of participants. Additionally, investors who buy mutual fund shares do not actually own the fund or its assets; rather, they own a portion of the fund’s value.
Transaction Consideration
On the transactional side, events might move more slowly in a managed account. Days may pass before the manager has the money fully invested. Also, depending on the holdings selected, managers may be able to liquidate securities at specific times only.
Conversely, shares of mutual funds may typically be purchased and redeemed as desired, daily. However, some mutual funds may carry penalties if redeemed before holding for a specified period.
The professional guiding a managed account may attempt to offset gains and losses by buying and selling assets when it is the most tax beneficial to the account’s owner. In doing so, it could result in little or no tax liabilities on a significant profit for the individual. In contrast, mutual fund shareholders have no control over when portfolio managers sell the underlying securities, so they may face tax bites on capital gains.