It is challenging for investors to manage their financial assets, including cash and properties. Investing also requires a lot of active management and research. Therefore, investors often seek help or rely on financial experts or money managers to oversee the portfolios. They manage buying, selling, and investing on behalf of their client.

A managed account is an account or portfolio that is managed by an external party, in this case, a financial advisor. These financial advisors are experts and well-informed about the financial industry, acting in the best interest of their clients and helping them grow their investments. In this article, you will discuss managing accounts and how they can help you achieve investment goals!

What Is A Managed Account?

A managed account, also known as an investment account, is an account owned by an investor that a third party manages. It is a portfolio that includes investments such as cash, financial assets, and property titles, which are managed by a financial expert. The dedicated manager makes investment decisions on behalf of their clients, considering their goals, asset size, risk tolerance, and other relevant factors. These financial experts trade, purchase, and sell investments on behalf of their clients, adhering to industry regulations. They earn commissions or fees based on the growth in the assets within their portfolio.

Types Of Managed Accounts

An investor may have several types of managed accounts to choose from, depending on what types of accounts an organisation offers. The four types of managed accounts that financial experts oversee include:

• Separately managed account (SMA)
• A unified managed account (UMA)
• An individual managed account (IMA)
• A managed discretionary account (MDA)

How Does A Managed Account Work?

The investment manager, also known as a money manager, has the authority to sell or buy assets without the client's prior approval. They must act in accordance with financial laws and regulations, as well as the client's objectives, as this constitutes a fiduciary duty. The investment manager typically supplies the client with regular reports on the account's performance and any additional investments made, enabling the client to understand their entire investment portfolio.

The manager must act in the best interest of the client and protect them from potentially facing criminal or civil penalties. Most organizations require their potential client to invest a minimum amount before being eligible to hire a money manager. For example, a firm requires investors to invest between $2,000 and $250,000 to open a managed account. If the client agrees to invest the amount needed, the firm will open an account on their behalf. Then, the investor will provide the organization with the necessary funds to invest.

Managed Accounts Vs. Mutual Funds

Mutual funds and managed accounts are both types of portfolios that are managed by a financial specialist for a client. Managing accounts and mutual funds ensures compliance with regulations to maintain the security of client investments. However, the specific laws governing them are different. A mutual fund has multiple owners or investors who own a share or a percentage of the fund's financial worth. At the same time, managed accounts have a single investor or owner.

Clients who invest in mutual funds or managed accounts both have their own investment goals. However, mutual fund investors often invest in a mutual fund as part of an employer-funded retirement program. On the other hand, investors who open managed accounts usually have their personal reasons. In mutual funds, investors lack control and governance over their investment portfolios. Whereas, in managed accounts, the investor has power when the manager sells a portion of their portfolio

Pros And Cons Of Managed Accounts

Let’s look over the pros and cons of a managed account:

Pros Of Managed Accounts:

The benefits of a managed account are:

• Customized Financial Advice: Money managers employ a specific process for investing, rather than relying on guesswork to distribute funds. They also provide customized financial advice to their clients based on the type of investment method they are using. Using their practical communication skills, money managers shared their ideas with clients on how to grow the investment.
• Readily Available Investment Experience: Often, money managers are well-informed about the financial industry, which enables them to make successful investments that benefit their clients. If they are highly qualified money managers, they can assist the clients in deciding where to allocate the assets and money.
• Capital Appreciation: It refers to the difference between the selling price and the purchase cost of an asset. Appreciation occurs when the market value of assets increases. For example, when someone invests money to appreciate an asset they own, and the economic changes in the market cause that asset's value to grow. Let's learn it through an example. Let’s say a money manager has purchased a stock worth $20 and monitors its value until it increases. If the stock is worth $30 now and they sell it at this point, it means the investor's capital appreciation is $10. Investments like mutual funds in real estate also experience capital appreciation.

Cons Of Managed Accounts:

The cons of a managed account are:

• High Minimum Investment Required: Many investors may be deterred from opening a managed account due to the high minimum investment requirement. You can opt for mutual funds or utilize a robotic advisor as alternatives.
• Annual Fees: Money managers collect yearly fees in return for providing their services to clients to manage their portfolios. These annual fees are high and may impact overall returns.
• Restricted Access to Assets: It may take several days for a client to be de-invested or withdraw money from their managed accounts. To overcome this, money advisors may encourage their clients to plan accordingly to have access to their assets when required.

Conclusion:

If you are worried about managing your portfolios, money managers can do the job for you. They are financial experts who comply with financial laws and regulations and act in your best interest. They help you grow your investment portfolio. Most people confuse managing accounts with mutual funds. One investor owns managed accounts, whereas multiple investors own mutual funds. The benefits of opening a managed account include customized financial advice and the potential for capital appreciation on your investments. Cons include high annual fees, restricted access to your assets, and a high minimum investment to open an account.