What Is Managed Investing?

Managed investing is a type of investment account where an investor gives a financial manager the discretion to buy and sell investments on their behalf, in accordance with an agreed-upon plan. This arrangement is often more convenient for investors than using a mutual fund, as it requires less paperwork and fewer meetings. However, managed accounts can still be complicated to understand and require a significant amount of work from the investor.

In recent years, managed accounts have become popular with high net worth individuals, in part because they allow for more control over investments and provide detailed reports on portfolio performance. There has also been a rise in automated services, or robo-advisors, that offer low-cost and easy management of an investor’s money. However, these services do not offer the knowledge and experience that a financial advisor can bring to an investor’s plan.

Whether or not to move from self-directed to managed investing is a personal decision. Investors need to weigh the advantages of having a professional guide their journey against the added cost and hefty minimum deposit requirements that come with managed accounts.

Managed accounts are offered by many financial institutions, including brokerage firms and private wealth management companies. Investors may choose to use predetermined managed portfolios, which are often labeled as “balanced,” “growth,” or “small cap.” Investors can also customize their portfolios, though these options are more limited than for a self-directed account.

While diversification is a common practice in managed accounts, it does not guarantee a profit or prevent losses. Additionally, diversification does not reduce market risk or protect against a loss in declining markets.

Many managers of managed accounts are active, meaning that they actively monitor and evaluate the holdings in their accounts to make changes based on their research and professional experience. This approach can increase the chances of achieving an investor’s goals by making timely adjustments in response to economic conditions and the changing value of their investments.

For example, the steward of a managed account may take steps to offset gains and losses by selling assets at a tax-efficient time. This can reduce the amount of capital gains taxes that investors will have to pay when they eventually realize a profit.

There are a variety of fees associated with managed accounts, including set-up and ongoing charges. The fee structure can vary significantly, and small differences in these charges can have a significant impact on your return.

For example, some managers charge an establishment fee to open your account, while others charge an annual fee based on the percentage of your assets they manage (assets under management, or AUM). Others may charge a management fee that is calculated as a percentage of your total account balance. These fees may be taxable or non-taxable, depending on your situation and the types of funds in your portfolio. In addition, some investors may face additional transactional fees, such as commissions on buying and selling shares. Managed investing