A managed account is a personalized investment account managed by a professional portfolio manager on behalf of an individual or entity, offering tailored investment strategies and direct ownership of securities.
A managed account is a type of investment account where a professional money manager oversees the holdings on behalf of the investor, making tailored investment decisions based on the client's specific objectives, risk tolerance, and preferences. Unlike pooled investment vehicles, such as mutual funds, managed accounts offer direct ownership of securities, enabling investors to have more control and customization. These accounts are often used by high-net-worth individuals, family offices, and institutions seeking personalized portfolio management with transparency and flexibility. In the financial and wealth management industries, managed accounts allow for bespoke asset allocation, tax management strategies, and the ability to exclude or include certain securities according to the investor's ethical considerations or financial goals. Portfolio managers typically use discretion to buy and sell securities within the account in alignment with an agreed-upon investment policy statement (IPS). This contrasts with self-directed accounts, where the investor makes all trading decisions independently.
Understanding and utilizing managed accounts provides tailored investment management that aligns with detailed financial goals and tax considerations, essential for preserving and growing wealth over multiple generations. Managed accounts facilitate greater transparency, as investors retain ownership of the underlying assets and receive detailed reporting. This direct ownership can enhance tax efficiency by enabling strategies such as tax-loss harvesting and customized income distributions. Moreover, managed accounts support governance and compliance within a family office or wealth management context by offering clear accountability from the portfolio manager and alignment with fiduciary standards. The ability to customize the portfolio can help mitigate risks associated with concentration, unsuitable investments, or conflicts of interest. Consequently, managed accounts play a crucial role in strategic investment planning and risk management for sophisticated investors.
A family office opens a managed account with a portfolio manager who tailors the investment portfolio to exclude certain industries due to the family's ethical preferences and optimizes the portfolio for tax efficiency. The portfolio manager actively trades stocks and bonds within the account, providing quarterly performance reports directly reflecting the securities owned. For example, the account might hold $2 million in high-quality equities and fixed income, with specific allocations adjusted based on market conditions and family objectives.
Separately Managed Account
Separately Managed Accounts (SMAs) are a specific form of managed account where investments are managed on a separate basis for an individual investor, often with greater customization and transparency than pooled funds. SMAs emphasize direct ownership of assets and bespoke portfolio construction, similar to managed accounts, but the term often highlights use in particular institutional or high-net-worth contexts.
What distinguishes a managed account from a mutual fund?
A managed account offers direct ownership of securities personalized to the investor's needs and provides customized management, whereas a mutual fund pools investors' money to buy a standardized portfolio in which investors own shares of the fund, not the underlying assets.
Are managed accounts tax-efficient compared to other investment vehicles?
Yes, managed accounts allow for greater tax efficiency because portfolio managers can implement tax-loss harvesting, control the timing of capital gains, and customize income distributions based on the investor's tax situation.
Who typically benefits from using managed accounts?
Managed accounts are especially beneficial for high-net-worth individuals, family offices, and institutional investors who require customized investment solutions, transparency, and the ability to align portfolios with specific financial goals and values.
