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What Is a Managed Trading / Investment Account? (A Managed Account)

What Is a Managed Trading / Investment Account? (A Managed Account)

A managed account is a kind of investment account in which the investor owns the assets but the account is managed by a third party.

The account owner may be an institution or a retail investor. The investor then hires a professional money manager to monitor the account and its trading activities.

With discretionary power over the account, the dedicated manager actively manages it, taking into consideration the client’s requirements and objectives, risk tolerance, and asset size. Managed accounts are particularly popular with high-net-worth individuals.

Key points

  • The portfolio owner provides their account to a pro money manager to handle the investment decision for them.
  • Investment managers charge a performance fee which is typically a percentage of the profit, and that’s why they demand a five or six-figure investment as a minimum.
  • Low-capital investors may benefit from the less expensive algorithmic management.

Here is how the Managed Account works:

A managed account may be made up of financial assets, cash, or property titles.

The money or investment manager has the right to purchase and sell assets without prior permission from the client, as long as they are acting in accordance with the client’s goals. Due to the fiduciary nature of managed accounts, the manager is required to act in the client’s best interest or risk legal or criminal liability. Typically, the investment manager will provide frequent updates to the customer on the performance and holdings of the account.

Money managers often require a minimum dollar amount for the accounts they manage, indicating that a customer must have a particular amount of money to invest. Many managers need a minimum of $250,000, but others may take $100,000 or even $50,000 accounts.

Managers often charge an annual fee based on a proportion of the assets under management (AUM).

Compensation costs vary considerably but typically are between 1% and 2% of AUM. Numerous managers provide discounts depending on the asset size of an account, so that the bigger the portfolio, the lower the percentage charge. These fees may qualify as investment expenditures for tax purposes.

The so-called robo-advisor is a new innovation in managed accounts targeted at retail investors. Robo-advisors are digital services that provide automated, algorithm-driven portfolio management with little to no human oversight. These platforms are generally less expensive, costing about 0.25 percent of AUM and requiring as little as $5 to get started.

⚡High-net-worth people often utilize managed accounts since they sometimes demand a significant minimum dollar amount of investment.

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