Investing through a managed account

What is a managed account?

A managed account is a portfolio of stocks and/or bonds that is owned by an investor. However, the account is managed by somebody else such as a professional investment manager. The investor has ownership of the account, while the investment manager is hired to oversee the account and make trading decisions. 

The manager has ‘discretionary authority’, which means that they can make investment decisions without the investor’s consent for each trade. They are experts in investing and consider risk tolerance, asset size as well as client’s objectives when trading on behalf of the investor.

Individuals who have managed accounts are usually high net worth investors who use managed accounts. The investor can either be an institutional investor or an individual retail investor.

How does a managed account work?

A managed account can hold financial assets, cash, or titled to property. As the investment manager, they act in the best interest of their investor and have the ability to buy and sell assets without prior approval. 

To ensure that the investment manager is acting in the client’s best interest, the investment manager will regularly provide reports on the account’s performance. The manager has a ‘fiduciary duty’. This means that they have the responsibility to act in the best interests of the investor. If the manager was found to not be fulfilling its fiduciary duty, they could face criminal or civil penalties and lose the right to compensation.

Types of Managed Accounts

A managed account can come in the form of a separately managed account (SMA), individually managed account (IMA), or managed discretionary account (MDA).

Separately managed accounts (SMAs)

SMAs are run under a Registered Management Investment Scheme legal structure with a professional investment manager overseeing the portfolio. 

Each client has the same underlying investments, however the value of these investments vary depending on the time of purchase. SMAs provide a more ‘one size fits all’ approach in comparison to MDAs and IMAs. These managed accounts result in a lower minimum investment and cost savings.

SMAs are constructed on a 'model portfolio' basis by an investment professional. Any changes in the model portfolios will result in corresponding changes to the client’s portfolios.

Individually managed accounts (IMAs)

These managed accounts are usually operating as an unregistered Managed Investment Scheme. They can offer greater personalisation, tailoring to each client’s objectives. IMAs offer flexibility to include or exclude shares, or other investments based on the client’s preferences. IMAs are relevant for high net worth clients who may already have holdings in specific shares and market sectors. They also are suitable for working professionals who can not invest in shares of companies they deal with.

Managed Discretionary Accounts (MDAs)

MDAs are under a different legal structure to SMAs and IMAs. The account requires the operator to have an Australian Financial Services Licence. An MDA is a personal investment account where the client has a portfolio of investment assets. However, the account is managed on an individual basis by a MDA provider at the MDA provider’s discretion. After an initial agreement, where agreed limitations can be made, the MDA provider becomes responsible for managing the client’s account.

Advantages

Disadvantages

Looking into investing through a managed account can be exciting, but also quite daunting. If you would like extra advice on investing, contact Wagtail Wealth today.

IMPORTANT NOTE: This information is general advice only and does not take into account your personal circumstances, goals and objectives. Therefore, you should consider its appropriateness for your circumstances before acting on this information.

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