The Coach SpaceIf you are studying to be a financial adviser or advice practice manager, then you have probably heard of managed accounts, but might not yet be sure what the term actually entails. Basically, a managed account is a portfolio comprised of stocks, bonds, or a combination of both owned by a single investor, but is handled by an investment manager they hire to oversee its operations and use their expertise to guide it toward achieving the owner’s goals.
The assigned investment manager has discretionary authority over the account they are managing, which allows them to make investment decisions based on the owner’s stated goals and needs, as well as upon the asset’s size, and how much risk can be tolerated. These days, the investment manager’s own expertise is often aided by a managed account platform that can help to organize and process the transactions, while closely watching the ever-changing markets and working to deliver their client with optimal results!
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So, how exactly does this system work? Managing the account owner’s portfolio usually involves a team of three important players, the client themselves, the client’s financial adviser, and the investment manager, all working closely together to achieve the goals of the client, who is the account’s principal owner. The difference between a financial advisor and an investment manager is that they work from different perspectives.
The financial advisor maintains a broad focus on all the various aspects of the investor’s financial dealings, while the account manager stays focused more tightly on monitoring and making adjustments to the investment options of their specific managed account. Their client has invested in the managed account in order to meet their hoped-for financial goals, in other words, profits! A managed account might be made up of titles to property, cash, as well as financial assets like stocks and bonds.
The client expressly grants their account manager consent to conduct transactions within the scope of their stated objectives, selling and purchasing assets on their client’s behalf, then sharing the results with the client and financial adviser.
At this point, you may be asking what the difference is between a managed account and a mutual fund is? Managed accounts are quite similar to mutual funds in that their active management of pools of money and portfolios can be invested across various asset classes. The mutual fund is in essence a kind of managed account where the fund company hires a professional money manager to oversee the investments comprising the fund’s portfolio.
Much like managed accounts, the mutual fund manager maintains full powers of discretion over the day-to-day investment decisions, all of which are based upon the fund’s overarching objectives. In the 1950s investments in mutual funds reached a record high, and were widely promoted as investment opportunities for beginner retail investors to gain experience and build their expertise as professional money managers. Before that period, these services were solely the province of investors with a high net worth.
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In closing, the professional supervision of managed accounts focus on the needs of the client, and can be carefully timed to reduce tax burden, all while the managed accounts activities are monitored by the financial adviser and the client investor, an excellent arrangement for all involved!
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