Managed Account

What Is a Managed Account?

A managed account is a brokerage or advisory account in which an investment professional selects and monitors the holdings on the client's behalf. Instead of choosing each stock, bond or fund personally, the investor agrees on a general strategy with the manager, who then carries out trades within the agreed limits. This arrangement is common among people who want professional oversight or who lack the time or interest to manage a portfolio directly.

How It Works

At the start, the manager typically gathers information about the client's financial situation, time horizon, income needs and comfort with market swings. From that, the manager builds a target mix of assets, a process often called asset allocation. The manager then buys and sells securities to reach that mix and rebalances the account over time as prices move and circumstances change.

Managed accounts usually fall into two categories. In a discretionary account, the manager can trade without asking approval before each transaction, within the scope of the written agreement. In a non-discretionary account, the manager recommends trades, but the client must approve each one.

Fees and Responsibilities

Managed accounts are generally paid for through fees rather than commissions. A common structure is an annual charge calculated as a percentage of the assets under management, though some programs use flat or hourly fees. Some managed accounts are offered as a wrap account, which bundles advisory, trading and custody costs into a single fee. Reading the fee schedule carefully matters, since costs reduce net returns over time.

Registered investment advisers who manage accounts are generally held to a fiduciary duty to act in the client's best interest under U.S. rules. Other managers may operate under different standards, so the type of professional involved is an important detail.

Advantages and Disadvantages

Managed accounts offer professional management, ongoing monitoring and disciplined rebalancing, which can help investors who lack time or expertise. They are also available at many price points, including automated services often called a robo-advisor.

The drawbacks include ongoing fees, which can add up over long periods, and the loss of direct control over individual holdings. Performance depends on the manager's decisions and on market conditions, and no management style guarantees results. Investors also give up some visibility into day-to-day trading, so understanding the strategy and reviewing account statements remain part of the process.