When Are Managed Accounts Right For You?

From an average investor’s perspective, the marketplace might seem like it’s naturally segmented into specific categories. There are the online brokers for the investors that want to have complete control over their investments, 401(k) investors that exclusively use their employer-sponsored retirement accounts as their entryway into the markets, and investment management for those that prefer to work with a financial professional to help them reach their financial goals.

For the investors that take the professionally managed route, loaded mutual funds are the most popular choice of investments as they provide access to professional money management for those willing to pay the associated mutual fund load fees. However,managed accounts are an alternative to loaded mutual funds that allow investors to work with financial professionals while avoiding the restrictions of typical  retail mutual fund investing. In fact, using a managed account can dramatically increase the number of investments and investment types available to an investor.

Managed Account Basics

When you open a managed account with a financial advisor or investment manager, your entering into a contract where the financial professional serves as a fiduciary. In simpler terms, that professional must always act entirely with your best interests at heart and legally cannot allow third parties to influence their advice.

From an investment perspective, rather than paying front end loads or similar fee schedules on retail mutual funds, a wrap fee is attached to your assets where a particular percentage of those assets being managed by the financial professional is paid as a commission. Using this type of fee schedule, the advisor is incentivized to maximize performance in your accounts since their fee will rise along with greater asset values.

Also, since you are not relegating yourself to an individual fund family in order to minimize mutual fund load expenses, you can use the entire spectrum of the investment landscape – including most fund families, ETFs, individual stocks and bonds, and a variety of other choices – within the managed accounts without worrying about load fees.

Pros and Cons of Managed Accounts

The fiduciary obligations involved with a managed account obviously work in an investor’s favor since the advice they are given should be free of outside influence. Also, as previously stated, managed accounts significantly expand the number and scope of investments available.

However, that is not to say that managed accounts are appropriate for everyone. From a cost efficiency perspective, it is absolutely possible for a typical, retail-oriented, loaded group of mutual funds to be more cost-effective over the long run, particularly as more assets are accumulated that trigger higher breakpoints and lower costs.

When deciding whether or not to use managed accounts, it is important for every investor to weigh these pros and cons to see which option is most appropriate for their specific needs.

This content is designed to provide general information on the subjects covered. It is not intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market or recommend any tax plan or arrangement. You are encouraged to consult your personal tax advisor or attorney.

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Gary Marriage Jr. is the founder and CEO of Nature Coast Financial Advisors, which educates retirees on how to protect their assets, increase their income and reduce their taxes. Marriage is a national speaker, delivering solutions for pre-retirees, business owners and seniors on the areas affecting their retirement and estates. He is an approved member of the National Ethics Bureau, and has been featured in “America’s Top Hometown Financial Advisors 2011” and was selected to contribute to a book with Steve Forbes titled “Successonomics”


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