Managed Accounts

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Managed Account

What Is a Managed Account?

A managed account is an investment account that is owned by a single investor, either by an institutional investor or an individual or retail investor. A professional money manager, hired by the investor oversees the account. Armed with discretionary authority over the account, this dedicated manager actively makes investment decisions pertinent to the individual, considering the client’s needs and goals, risk tolerance, and asset size.

Managed accounts hold many benefits for the high net-worth investor.

Key Takeaways

  • A managed account is an investment account that is owned by one investor but is supervised by a professional money manager who has been hired by that investor.
  • Money managers often demand six-figure minimum investments to manage accounts and are compensated by a fee, a set percentage of assets under management (AUM).
  • 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.

How a Managed Account Works

A managed account may contain financial assets, cash, or titles to property. The money or investment manager has the authority to buy and sell assets without the client’s prior approval, as long as they act according to the client’s objectives. Because a managed account involves fiduciary duty, the manager must act in the best interest of the client or potentially face civil or criminal penalties. The investment manager will typically supply the client with regular reports on the account’s performance and holdings.

Money managers often have minimum dollar amounts on the accounts they will manage. That is, a client must have a certain amount of funds to invest. Many minimums start at $250,000, though some managers will accept $100,000 and even $50,000 accounts.

To compensate the manager for his efforts, they will usually charge an annual fee, calculated as a percentage of the assets under management (AUM). Compensation fees range greatly, but most average around 1% to 2% of AUM. Many managers will provide discounts based on an account’s asset size, so that the larger the portfolio, the smaller the percentage fee. These fees may be tax-deductible, as investment expenses.

Managed funds are most often used by high net-worth individuals, due to the often high minimum dollar amounts required by most such funds.

Managed Accounts Vs. Mutual Funds

Managed accounts and mutual funds both represent actively managed portfolios or pools of money that invest over a variety of assets—or asset classes. Technically, a mutual fund is a type of managed account. The fund company will hire a money manager to look after investments in the fund’s portfolio. This manager may alter the fund’s holdings per the fund’s objectives. When mutual funds began to be marketed in earnest in the 1950s, they were touted as a way for the “little guy”—i.e., small retail investor—to experience and benefit from professional money management. Previously, this was a service available only to high-net-worth individuals.

Customized managed accounts address the account holder’s needs; mutual funds invest according to the fund’s objectives.

Managed account trades can be timed to minimize tax liability; mutual fund investors have no control when a fund realizes taxable capital gains.

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.

Managed accounts often require six-figure minimum in funds; mutual funds demand much lower initial investment amounts.

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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.

Compensation for managed account managers is by annual fees that can impact overall return; mutual funds’ expense ratio fees tend to be lower.

Management Considerations

Both managed accounts and mutual funds have professional managers. Managed accounts are personalized investment portfolios customized to the specific risks, goals, and needs of the account holder. Management of the mutual fund is on behalf of the many mutual-fund holders and done to meet the fund’s investment and return objectives.

With a managed account, the investor allocates funds, and the manager purchases and places physical shares of securities into the account portfolio. The account holder owns the securities and may direct the manager to trade them as desired. In contrast, mutual funds are classified by investors’ risk tolerance and the funds’ investment objectives, not by individual preferences. Also, investors purchasing shares of a mutual fund own a percentage of the value of the fund, not the fund itself or the actual assets in the fund.

Transactional Considerations

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 when portfolio managers sell the underlying securities so that they may face tax bites on capital gains.

Managed Account Example

In July 2020, managed funds were in the news, as several institutional investors simultaneously opted for them over the hedge funds that had been handling a portion of their portfolios. The investors wanted broader platforms, customized strategies, full control over their separate accounts, daily valuation, significantly lower fees, and full transparency when it came to those fees, as well as to the nature of the holdings themselves.

How to Find the Best Managed Accounts

A managed account—sometimes called a wrap account—is a type of investment management service that packages together a group of investments for you. Some managed accounts offer a good service for the price while others have high fees and tax inefficiencies. The challenge is figuring out which is which.

Types of Managed Accounts

An investment advisor may manage a portfolio of stocks, which is often referred to as a “separately managed account.” An investment advisor may also manage a portfolio of mutual funds; if this mutual fund management service also covers the brokerage fee costs it is called a “wrap account.”

A financial advisor may recommend you invest your money in both separately managed accounts and wrap accounts, in which case you may be paying several layers of investment fees.

Layers of fees can make the wrong type of managed account excessively expensive; remember the higher fees, the lower the returns for you. Investment management is not a service where paying more delivers higher returns. As a matter of fact, it has been proven in mutual funds that the higher the mutual fund fees, the lower your returns from that fund are likely to be.

Index funds charge about 0.10 to 0.35%. That means if the advisor is charging 1%, and using index funds inside the account, total fees end up being about 1.25%. That is reasonable. But if the advisor is using higher-fee funds and there is a lot of trading and trading costs, you can end up paying total fees of 2 to 3% a year. That’s a lot!

Taxes

Actively managed accounts often have frequent trading that occurs inside them which means they are not very tax-efficient, so for non-retirement money they may not be the best solution. Accounts that turnover your account, or make frequent changes to your portfolio, incur higher transaction fees and result in a higher tax bill for you. This reduces your net investment return (your return after taxes and fees). Net returns are what matters.

If you have money in non-retirement accounts, or in a combination of retirement and non-retirement accounts, then what you need to pay attention to is after-tax returns. A good investment advisor can place tax-efficient investments in your non-retirement accounts and tax-inefficient investments in your retirement accounts. It is a process called “asset location.” When this is done properly, research shows it can significantly increase your after-tax returns.

How to Find the Best Managed Accounts

Kind of like doing your taxes, you can do it yourself, or pay someone to do it for you. What you are paying for is someone who will build an appropriate allocation, choose low-cost funds to fill in that allocation, monitor it, rebalance when needed, and report on the results so that you know your percentage return each year.

You need to decide if you are a do-it-yourself person or if you prefer to delegate. Professionals tend to follow a more disciplined process, so, that in itself can lead to better results. However, if you were able to follow that disciplined process on your own, then you would achieve the same results.

Hiring someone does not mean they will achieve higher returns than you would on your own. It means you are hiring them to follow a disciplined and consistent investment process and build an appropriate portfolio for you. If you want to delegate, these guidelines will help you find the best-managed account:

  • Pay attention to total costs. Ask for an estimate of all trading costs, fund fees, and advisor fees. Make sure total fees are 2% or less a year.
  • If you have money in after-tax accounts as well as retirement accounts, find advisors who manage for after-tax returns.
  • If you have money in many different types of accounts, find an advisor or managed account platform that will manage your assets across a household, not at an individual account level.
  • If you want an online solution to manage your money automatically, check out some of the top robo-advisors.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.

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All the Atlassian accounts with email addresses from your verified domain become managed accounts. Managed accounts give you the most security and access control over your company’s use of Atlassian products.

To view all the managed accounts for your organization at admin.atlassian.com, select Directory > Managed accounts from the left navigation. From the Managed accounts page, you can search accounts by name and email address. When your search criteria is more than 3 characters, we return results that match at least 3 continuous characters in your search criteria in addition to results that include the full string.

Only accounts with emails addresses of verified domains appear on your Managed accounts page. Other accounts are considered unmanaged, which means you can’t make changes to those accounts. Verify a domain for your organization from the Domains page.

As an organization admin, you can perform these operations on your managed accounts:

Deactivate the account, so the user can no longer log in to their account

Delete the account, so the user’s account is permanently gone

You can also use the user management REST API to edit account details and change user account statuses.

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