What is a Managed Account?

There are many different ways to invest, one such way which is less known, is to invest through a managed account. Here’s how they work.

Managed accounts were traditionally reserved for the ridiculously wealthy who had cash to spare and no time to manage their investments themselves. Today, managed accounts are far more accessible to everyday investors.

How do Managed Accounts work?

A managed account is a group of funds that make up a portfolio and are run by a professional fund manager on behalf of a single investor.

The investment manager should be a trusted professional who will buy, sell or trade assets without the prior approval of the investor. They can do this as long as their decisions align with the investors objectives.

Managed accounts are similar to managed funds, as they offer access to a diversified portfolio overseen by a professional investment manager, however, the difference is that money is not pooled with other investors.

How to get started with a managed account?

To get started with a managed account investors first need to engage with a professional fund manager. Deciding on a fund manager shouldn’t be a decision made lightly. Investors should consider the fees and expenses, returns made by their funds (particularly during market downturns), any tax implications and the overall reputation of the fund manager and the firm.

Once a fund manager has been decided on, typically the next step is to discuss with the fund manager what your investment goals and objectives are, as well as your current financial situation. From there, your fund manager will develop an investment strategy and create your investment portfolio. They will regularly review and implement portfolio changes on your behalf.

How much do you need to invest in a managed account?

Due to technology making investing more efficient and scalable, managed accounts are no longer just available to high net worth individuals, the minimum investment amount has declined significantly. Although, typically investors will still need a hefty $100,000 to set up a managed account.

However, there are ways to invest in a managed account with less. For example, InvestSmart offers what they call Professionally Managed Accounts (PMAs), which is similar to a traditional managed account, except instead of having a portfolio customised to the individual, investors can choose between the various predetermined diversified investment portfolios.

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Pros of managed accounts

Investing in managed accounts has its advantages, such as:

A high degree of customisation

A traditional managed account should be tailored to the investors with their investment goals and objectives top of mind.

Hands-off

For those who are time poor or not confident making investment decisions a managed account could be fitting.

Transparency

Often managed accounts have greater transparency compared to managed funds. This is because any trading decisions involving assets in a managed account are typically disclosed to the investor. This is not the case with managed fund investors who do not own the fund’s assets, and instead, share the asset value, therefore are not informed of trading decisions.

Greater tax efficiencies

Generally, managed accounts are designed to be tax efficient.

Cons of managed accounts

Managed accounts have their drawbacks as well ,which may make them unsuitable for some investors.

High minimum investment amount

As discussed above, often you need to have six-figures at hand just to open a managed account.

Liquidity

Liquidity refers to the ease with which you can convert your investments assets into cash. Generally, de-vesting from managed accounts’ assets can take several days. Not ideal if you need your money quickly.

Fees

The fees for managed accounts tends to be higher than that of managed funds.

Is having a managed account worth it?

Whether or not a managed account is suitable for you comes down to your own personal circumstance, investment goals and strategy. Before making any investment decision you should consider it carefully and, specifically for managed accounts, conduct thorough research into fund managers and their firm before deciding on one.

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