How to Find the Best Managed Accounts

Managed accounts – also known as “wrap accounts” – are a type of investment management service that pools a variety of investments on your behalf. Some managed accounts provide good services at a reasonable price, while others have high fees and poor tax efficiency. The challenge lies in knowing which is which.

Types of Managed Accounts

An investment advisor may manage a portfolio of stocks, often referred to as a “separately managed account.” An investment advisor may also manage a portfolio of mutual funds; if this investment fund management service also covers brokerage fees, it’s referred to as a “wrap account.”

Fees

The layers of fees can make the wrong type of managed account extremely costly. Remember: the higher the fees, the lower the returns. Investment management is not a service that provides higher returns when you pay more money. It has been shown that the higher the fees of mutual funds, the lower their returns.

Taxes

Managed accounts often involve frequent trading, making them extremely tax inefficient, so they may not be the best solution for non-retirement funds. Accounts that transfer your funds or make frequent changes to your portfolio incur higher transaction fees and increase your tax bill. These high fees diminish your net investment return – that is, your return after taxes and fees. Net returns are what truly matter.

How to Find the Best Managed Accounts

As with preparing your taxes, you can do this yourself or pay someone to do it for you. What you pay for is someone who will build an appropriate allocation, choose low-cost funds to fill that allocation, monitor it, rebalance when necessary, and report results so you know your return rate each year.

You have to decide whether you are someone who does everything yourself or if you prefer to delegate to someone else. Professionals tend to follow a more disciplined process, which can lead to better outcomes. However, if you are capable of following that disciplined process yourself, you can achieve the same results.

Hiring someone does not mean they will achieve higher returns than you will on your own. It means you are hiring them to follow a disciplined and consistent investment process and build a suitable portfolio for you. If you want to delegate, here are some guidelines to help you find the best managed account:

• Pay attention to overall costs. Request an estimate of all trading costs, fund fees, and advisor fees. Make sure the total fees do not exceed 2% annually.
• If you have money in taxable accounts in addition to retirement accounts, look for advisors who manage after-tax returns.
• If you have money in many different types of accounts, seek a managed account advisor or platform that manages your assets across families, not at an individual account level.
• If you want an online solution to automatically manage your money, check out some of the best robo-advisors.

The Balance does not provide tax, investment, or financial services or advice. Information is provided without regard to the investment objectives or risk tolerance or financial circumstances of any specific investor and may not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the risk of loss of principal.

Source: https://www.thebalancemoney.com/what-is-a-managed-account-2388512