Managed Account

Definition

A managed account is an investment account that is owned by an individual investor but overseen by a professional money manager or financial advisor. The manager makes investment decisions, selects assets, and executes trades on behalf of the investor, often for a fixed yearly fee or a percentage of assets under management. This type of account offers personalized portfolio management and potentially better risk-adjusted returns but usually requires a higher minimum investment.

Phonetic

The phonetic pronunciation of “Managed Account” is:MAN-ijd uh-KOUNT

Key Takeaways

1. Managed accounts offer professional investment management services
2. They typically come with higher fees compared to self-directed accounts
3. Managed accounts can be tailored to an individual’s risk tolerance and investment goals

Importance

The term “Managed Account” is important in business/finance because it refers to an investment account that is tailored to meet an individual investor’s specific needs and objectives, offering personalized portfolio management. Professional managers, who possess expertise in analyzing and selecting investment opportunities, actively oversee these accounts, thus ensuring that the portfolios align with the investor’s risk tolerance, financial goals, and investment strategies. This hands-on approach facilitates optimal asset allocation and diversification, potentially resulting in better overall investment performance. Furthermore, managed accounts offer transparency, tax efficiency, and cater to each investor’s unique preferences, making it a vital component in personalized wealth portfolio management.

Explanation

Managed accounts serve as a useful financial tool for individuals and businesses looking to delegate the oversight and management of their investment portfolios to professional money managers. This route offers numerous benefits for clients, including the prospect of tailoring the investment strategies to their specific financial objectives and risk tolerances. These professional managers bring their extensive expertise, market research, and analysis capacities to the table, along with access to a vast array of financial products, which can be advantageous for those who may not have the time, interest, or in-depth knowledge to personally monitor and manage their investments. By entrusting their funds through a managed account, clients can remain actively engaged in the investment process without having to micromanage every single decision. The clients can work collaboratively with their assigned money manager, stipulating guidelines and investment preferences in accordance with their respective financial goals. Consequently, managed accounts provide transparency, control, diversification, and customized investment strategies, blending the best of both worlds – the personal touch of a tailored investment plan and the expertise of seasoned professionals. Though fees may be incurred for the services provided, clients who utilize a managed account might find that the long-term benefits outweigh the initial costs, particularly when compared to the risks involved in attempting to handle their own investments with limited experience or knowledge.

Examples

A managed account is an investment account managed by a professional investment manager or firm on behalf of an individual or institutional investor. These accounts offer personalized portfolio management, typically with a focus on achieving the investor’s specific financial goals or objectives. Here are three real-world examples: 1. High Net-Worth Individuals: A wealthy individual might hire an investment management firm to handle their financial assets to create a diversified and personalized portfolio. The professional manager will make personalized investment decisions based on the client’s objectives, risk tolerance, and time horizon, actively managing the account to maximize returns and minimize risks. For example, a client with a high risk tolerance and long-term investment horizon might have a managed account that consists mostly of growth stocks, while a more risk-averse investor might have a more conservative portfolio with a mix of bonds and blue-chip stocks .2. Pension Funds: A pension fund is a pool of money set aside by companies or governments to provide retirement income for employees. These funds often use managed accounts to ensure that the pension fund’s assets are well-diversified and professionally managed to generate the returns necessary to meet the fund’s obligations. Pension funds engage professional investment management firms to actively manage the account, including selecting the appropriate mix of stocks, bonds, and other assets and rebalancing as needed based on market conditions and the plan’s liability projections. 3. Endowments and Foundations: Endowments and foundations are long-term investment funds established to support the activities of non-profit or educational organizations. These organizations often rely on managed accounts to invest their sizable assets, with professional managers overseeing the investments to ensure that they meet the organization’s investment policy objectives and provide the necessary financial support. A university endowment, for example, may have a managed account with a focus on long-term growth and capital preservation, managing a diverse portfolio of assets, including stocks, bonds, real estate, and alternative investments to generate revenue for scholarships, faculty salaries, and other university expenses.

Frequently Asked Questions(FAQ)

Related Finance Terms

• Portfolio Management
• Investment Advisor
• Asset Allocation
• Performance Reporting
• Fee Structure

Sources for More Information

• OGE
• Investopedia
• Fidelity
• Indeed