A managed account is a portfolio of stocks, bonds, or other assets by a professional investment manager to achieve an objective, such as long-term growth or current income. Each account — and its individual investments — is owned by the investor for whom it is managed. In other words, a managed account is a way for an individual or institution to benefit from the professional expertise of a private investment manager.

Managed accounts overview

Each client account is one of the hundreds of accounts that the manager oversees. All of these accounts within a particular discipline generally share the same objective and include many of the same securities. For example, when the manager decides it’s time to sell a stock or other asset or buy new security, that transaction may well be made for many — and sometimes all — of the accounts simultaneously.

But the accounts an individual manager oversees are rarely identical. Because each account is individually owned, the owner may request that the portfolio include or exclude a particular security or securities, or that some holdings be sold to produce capital gains or losses.

managed accounts schematic

While extensive instructions from an individual account owner interfere with the investment manager’s ability to achieve that investor’s goals, providing owners the autonomy to make certain decisions are clear evidence of the value that investment managers place on serving each client’s needs.

Managed accounts tend to be actively managed because the markets in which the accounts are invested are constantly changing. The manager monitors, evaluates, adds, and sells investments in response to changing economic conditions or the shifting value of individual holdings. These decisions, which managers make based on investment research and professional experience, are precisely the ones that many individual investors feel uncertain about making on their own.

Managed Accounts Inna Rosputnia

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Since the funds are always on the investor’s account, he/she has full access to it, can monitor open trades, and access a wide range of reports.

Investment style and approach

Both the investment objective of a managed account and the investment style that its manager follows guide the buy and sell decisions the manager makes. An objective is the goal, or result the manager intends to achieve. One example might be steady growth in value combined with current income, while another is a long-term increase in value.

A style is an approach a manager takes in choosing investments to meet a specific objective. Two managers who share an objective might choose portfolios that are very much alike. But if the portfolios are very different, the reason is style. For example, if two managers seek long-term increases in account value, one might buy in up-and-coming new companies. The other might look for low-priced stock in faltering companies that are expected to rebound.

AN ELECTRONIC BOOST

While ifs not new for people, especially affluent people, to use investment managers, managed accounts — which typically require a minimum investment of $100,000 and are increasingly available through fee-based brokerage accounts —have flourished only recently. One reason is that the decision-making, tracking, record-keeping, and reporting that are essential to managing multiple individual accounts simultaneously are possible only when more and more of those tasks can be handled electronically.

The first would be described as a growth investor and the second as a value investor. Style consistency doesn’t guarantee success in the face of difficult market conditions, though. In a period when growth stocks are depressed, investment managers who oversee small-company growth accounts may not produce positive returns if all the growth benchmarks are down. But, in that same period, the manager of a small-company value account might produce much stronger returns if value benchmarks were up. The same would be true, at different times, for the entire range of managed account categories.

But if a manager sticks to an objective and follows a style, there can be an objective standard or yardstick, such as a relevant stock market index, against which to measure the performance of your account.

Finding diversification with managed accounts

While it doesn’t guarantee a profit or prevent a loss, diversification is key to a strong investment portfolio. Yet diversification requires enough capital to buy broadly, and enough information about a large number of securities to invest wisely. One appeal of managed accounts is that they are diversified across the category or categories of investments that are compatible with their objectives.

For example, a portfolio designed to provide growth and income might hold dividend-paying stocks in large and medium-sized companies operating in a number of different industries or market sectors. While there’s no hard and fast rule about portfolio size, a typical managed account has between 30 and 70 holdings, though some accounts have fewer and some have more.

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