Managed Accounts in 2025: Costs, Benefits, and How They Compare to Mutual Funds

What Is a Managed Account?

A managed account is a personalized investment portfolio owned by a single investor but professionally managed by an expert money manager or management firm. This setup allows either individual investors or institutions to delegate investment decisions while maintaining ownership of the account.

With discretionary authority, the manager actively directs investment choices tailored to the investor’s objectives, risk tolerance, and asset size. Managed accounts are predominantly favored by high-net-worth individuals seeking customized portfolio management.

Key Insights

• Managed accounts are individually owned portfolios overseen by professional managers hired by the investor.
• They often require substantial minimum investments, frequently starting at $100,000 to $250,000 or more.
• Fees typically range from 1% to 2% of assets under management (AUM), with discounts for larger portfolios.
• Robo-advisors provide algorithm-driven managed accounts at much lower costs, accessible to everyday investors with minimal starting capital.
• Mutual funds are a type of managed account but are pooled investments open to all investors rather than customized portfolios.

How Do Managed Accounts Work?

Managed accounts can hold diverse assets including stocks, bonds, cash, or property titles. The appointed money manager has the authority to buy and sell assets without needing prior approval for each transaction, provided they act in line with the investor’s goals.

Due to the fiduciary responsibility involved, managers must prioritize the investor’s best interests. Clients receive regular performance reports to stay informed about holdings and account status.

Minimum investment thresholds are common, often starting at $250,000, though some managers accept accounts as low as $50,000. Annual management fees are charged based on a percentage of AUM, averaging between 1% and 2%, with possible reductions for larger investments. Notably, these fees are no longer tax-deductible as per IRS regulations.

Innovations like robo-advisors offer automated portfolio management with minimal human intervention, charging as low as 0.25% of AUM and allowing starting investments as low as $5, making managed accounts accessible to a broader audience.

Important Note

Managed accounts are typically designed for investors with significant capital due to high minimum investment requirements.

Managed Accounts vs. Mutual Funds

Both managed accounts and mutual funds involve professionally managed portfolios that invest across various asset classes. However, mutual funds pool money from multiple investors and are managed collectively, whereas managed accounts are individualized portfolios tailored to a single investor’s needs.

Mutual funds gained popularity in the 1950s as a way for small investors to access professional management, a service once reserved for the wealthy.

Advantages

• Managed accounts provide personalized investment strategies aligned with the investor’s unique goals, while mutual funds follow preset fund objectives.
• Tax-efficient trading is possible in managed accounts, allowing managers to time trades to minimize tax liabilities; mutual fund investors have no control over capital gains distributions.
• Investors in managed accounts have full transparency and direct ownership of assets; mutual fund investors own shares representing a portion of the fund’s total assets.

Disadvantages

• Managed accounts usually require high minimum investments, whereas mutual funds have much lower entry thresholds.
• Liquidity can be slower in managed accounts, with transactions sometimes taking days, while mutual fund shares can generally be bought or sold daily.
• Management fees for managed accounts tend to be higher than mutual funds’ expense ratios, impacting net returns.

Management and Transactional Considerations

Managed accounts are customized portfolios with direct ownership of securities, granting investors the ability to influence trading decisions. Mutual funds, conversely, are managed on behalf of many shareholders, with investors owning a proportional share of the fund rather than individual securities.

Transactions in managed accounts may take longer to process due to the nature of asset selection and liquidity constraints. Mutual fund shares offer greater liquidity, with daily purchase and redemption options, though some funds impose early redemption fees.

Tax management is a key benefit in managed accounts, as managers can strategically buy and sell to minimize tax impacts. Mutual fund investors have no control over capital gains distributions, which can result in unexpected tax liabilities.

Special Industry Trends in 2024

In recent years, institutional investors have shifted from hedge funds to managed accounts seeking broader customization, enhanced transparency, lower fees, and daily valuation. For example, the Alaska Permanent Fund Corporation moved $2 billion from hedge funds to managed accounts to internalize investment decisions. Similarly, the Iowa Public Employees’ Retirement System transitioned $700 million into managed accounts across multiple firms to gain better control and cost efficiency.

Explore useful articles in Fund Trading as of 12-07-2022. The article titled " Managed Accounts in 2025: Costs, Benefits, and How They Compare to Mutual Funds " offers in-depth analysis and practical advice in the Fund Trading field. Each article is carefully crafted by experts to provide maximum value to readers.

The " Managed Accounts in 2025: Costs, Benefits, and How They Compare to Mutual Funds " article expands your knowledge in Fund Trading, keeps you informed about the latest developments, and helps you make well-informed decisions. Each article is based on unique content, ensuring originality and quality.