Financial Focus: Many factors go into deciding to use a managed account (column)
As an investor, you’ll face many decisions over the years. How much should you invest? Where should you put your money? When is it time to sell some investments and use the proceeds to buy others? Some people enjoy making these choices themselves — but not everyone. Consequently, the type of investor you are will influence your thinking about whether to open a managed account.
As its name suggests, a managed account — sometimes known as an “advisory” account — essentially is a portfolio of stocks, bonds and other investments chosen by a professional investment manager who makes the buy and sell decisions. Typically, each managed account has an investment objective based on your goals, and you may have some voice in investment choices — for example, you may be able to request that the manager avoid certain investments. Or, you might still work with a personal financial adviser who can help you identify and quantify your goals, define your risk tolerance and track changes in your family situation — and who can then use this information to help guide the investment manager’s choices.
Beyond this basic structure, managed accounts can vary greatly in terms of administration, reporting, fees and minimum balance.
So, assuming you meet the requirements for a managed account, should you consider one? There’s really no one right answer for everyone. But three factors to consider are cost, control and confidence.
• Cost: Different managed accounts may have different payment arrangements. However, it’s common for a money manger to be paid based on a percentage of assets under management. So, if your manager’s fee is 1 percent and your portfolio contains $100,000, then the manager earns $1,000 per year, but if the value of your portfolio rises to $200,000, then the manager earns $2,000. Because the manager has a personal stake in the portfolio’s success, this arrangement could work to your advantage. Be aware, though, that other fees may be associated with your account.
• Control: With any managed account, you will give up some, or perhaps all, of your power to make buy and sell decisions. If you have built a large portfolio, and you’re busy with work and family, then you may like the idea of delegating these decisions. And, as mentioned above, you can still oversee the “big picture” by either working through a financial advisor or, at the least, having your goals, risk tolerance and investment preferences dictate a money manager’s decisions. But you will have to decide for yourself how comfortable you are in ceding control of your portfolio’s day-to-day transactions.
• Confidence: It’s essential that you feel confident in a managed account’s ability to help you meet your goals. And the various elements of a managed account may well give you that assurance. For example, some managed accounts include automatic rebalancing of assets, which, among other things, can help you achieve tax efficiency. Other features of a managed account — such as the experience and track record of the manager — also may bolster your confidence.
Ultimately, you’ll need to weigh all factors before deciding whether a managed account is right for you. In any case, it’s an option worth considering.
This article was written for use by local Edward Jones financial advisors. Edward Jones and its associates and financial advisors do not provide tax or legal advice. Chuck Smallwood, Kevin Brubeck, Tina DeWitt, Charlie Wick and Bret Hooper are financial advisors with Edward Jones Investments and can be reached in Edwards at 970-926-1728, in Eagle at 970-328-4959 or in Avon at 970-688-5420.