Managed investment accounts are owned by individuals and administered by a designated financial manager. This manager maintains the authority to execute investment decisions with the primary goal being the client's best interest. Typically, these accounts appeal to individuals of high net worth due to notable minimum investment demands. Managed investment accounts are tailored to meet the specific needs of the investor, thus providing a more personalized approach to wealth management.
Such accounts may comprise of financial assets, cash, or property titles. The financial manager is authorized to trade assets without seeking prior consent from the client, provided their actions align with the latter's investment goals. Given the fiduciary responsibility tied to a managed account, managers are obligated to prioritize their clients' interests or potentially face legal ramifications. Regular reports on the account's performance and asset holdings are often provided by the investment manager.
Generally, financial managers stipulate minimum dollar thresholds for accounts they manage, implying that clients must possess substantial funds for investment. Minimum investments for managed accounts normally range between $100,000 and $350,000 dependent on the service provider, account type, and strategy. However, digital-only advisory accounts may accept lower starting investments in the region of $5,000.
Services provided by managers typically attract an annual fee, which is calculated as a percentage of the assets under management (AUM). Although these fees vary, they usually average between 1% to 2% of AUM. Often, managers offer discounts based on the size of an account's asset, meaning larger portfolios attract lower percentage fees. Unfortunately, according to the Internal Revenue Service, these professional fees are no longer tax-deductible as investment expenses.
Managed accounts have evolved to now include robo-advisors, digital platforms powered by automated, algorithm-driven portfolio management systems that require minimal human oversight. These platforms tend to be more affordable, charging around 0.20% to 0.30% of AUM per annum, and some do not require a minimum investment to begin.
Managed accounts target high-net-worth individuals due to high minimum investment prerequisites, similar to mutual funds, which are another type of managed account. The key difference lies in the customization of managed accounts to meet the holder's needs, whereas mutual funds invest based on the fund's objectives.
Managed accounts offer transactional flexibility, full transparency, control over assets, and the potential for tax optimization. Mutual fund investments, on the other hand, have lower initial investment requirements and are more readily tradable but offer shareholders less control over when capital gains occur or the underlying securities are sold.
The appeal of managed accounts is evident among significant institutional investors who desired broader platforms, personalized strategies, control over separate accounts, daily valuation, significantly lower and fully transparent fees, and clarity over the nature of holdings in July 2016. Other entities such as the state-operated Alaska Permanent Fund Corporation and Iowa Public Employees' Retirement System have transitioned considerable investment sums to managed accounts from hedge funds, bringing their investment decision-making in-house.