# Managed Accounts vs. Mutual Funds: Key Differences and Benefits

## What Is a Managed Account?

A managed account is an investment account owned by an individual but managed by a financial manager. The manager has the authority to make investment decisions and must act in the client’s best interest. These accounts are generally meant for high-net-worth individuals and often have minimum investment requirements. Managed accounts are customized for the account owner, offering more personalized investment management.

### Key Takeaways

*   Managed accounts offer personalized investment management tailored to an individual investor's needs and goals, often requiring a high minimum investment amount, making them a popular choice for high-net-worth individuals.  
    
*   Mutual funds, while a type of managed investment, allow investors to pool their resources to gain access to professional money management with lower minimum investment requirements compared to managed accounts.  
    
*   Managed accounts provide the investor with full ownership of the securities and the ability to time trades for potential tax benefits, whereas mutual fund investors hold shares in the fund, facing potential taxable events outside their control.  
    
*   While managed accounts can be costly due to high annual management fees, which can range from 1% to 2% of assets under management, mutual funds typically have lower expense ratios, providing a more cost-effective option for many investors.  
    
*   Robo-advisors have emerged as a more accessible form of managed accounts for everyday investors, offering algorithm-based management with lower fees and often minimal initial investment requirements.

## Understanding the Mechanics of Managed Accounts

A managed account may contain financial [assets](https://www.investopedia.com/terms/a/asset.asp), cash, or titles to property. The money or investment manager has the authority to buy and sell assets without the client’s prior approval, as long as they act according to the client’s objectives. Because a managed account involves [fiduciary duty](https://www.investopedia.com/terms/f/fiduciary.asp), the manager must act in the best interest of the client or potentially face civil or criminal penalties. The investment manager will typically supply the client with regular reports on the account's performance and [holdings](https://www.investopedia.com/terms/h/holdings.asp).

Money managers often have minimum dollar amounts on the accounts they will manage, meaning a client must have a certain amount of funds to invest. Many minimums start at $250,000, though some managers will accept $100,000 and even $50,000 accounts.

Managers will usually charge an annual fee for their services, calculated as a percentage of the [assets under management](https://www.investopedia.com/terms/a/aum.asp) (AUM). Compensation fees range greatly, but most average around 1% to 2% of AUM. Many managers will provide discounts based on an account's asset size, so that the larger the portfolio, the smaller the percentage fee. According to the Internal Revenue Service, these fees are no longer [tax-deductible](https://www.investopedia.com/terms/t/tax-deduction.asp) as investment expenses.

A new innovation to managed accounts aimed at lay investors is the so-called [robo-advisor](https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp). Robo-advisors are digital platforms that provide automated, algorithmically-driven portfolio management with little to no human supervision. These platforms are typically cheaper, charging, for example, somewhere in the region of 0.25% of AUM, and may require as little as $5 to get started.

> **Important**
>
> Managed accounts usually serve high-net-worth individuals because they often need a high minimum investment.

## Comparing Managed Accounts to Mutual Funds

Managed accounts and [mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp) both represent actively managed portfolios or pools of money that invest over a variety of assets—or [asset classes](https://www.investopedia.com/terms/a/assetclasses.asp).

Mutual funds are a type of managed account. A [fund company](https://www.investopedia.com/terms/f/fund_company.asp) hires a manager to oversee and adjust the fund’s holdings according to its objectives.

When mutual funds began to be [marketed in earnest in the 1950s](https://www.investopedia.com/articles/mutualfund/05/mfhistory.asp), they were touted as a way for the "little guy"—that is, small [retail investors](https://www.investopedia.com/terms/r/retailinvestor.asp)—to experience and benefit from professional money management. Previously, this was a service available only to high-net-worth individuals.

Pros

*   Customized managed accounts address the account holder's needs; mutual funds invest according to the fund's objectives.
    
*   Managed account trades can be timed to reduce taxes, but mutual fund investors can't control when capital gains occur.
    
*   Managed account-holders have full transparency and control over their assets, while mutual fund investors only own shares of the fund's value.
    

Cons

*   Some managed accounts require six-figure minimum in funds; mutual funds demand much lower initial investment amounts.
    
*   Investing in or withdrawing from managed accounts can take days, but mutual fund shares can be bought or sold daily.
    
*   Managed account managers tend to charge high annual fees that impact overall returns; mutual funds' expense ratio fees tend to be lower.
    

### Key Management Factors in Account Choices

Both managed accounts and mutual funds are managed by professionals. Managed accounts are tailored to the account holder's risks, goals, and needs. Mutual funds are managed to meet the investment and return objectives for all investors.

With a managed account, the investor allocates funds, and the manager purchases and places physical shares of securities into the account portfolio. The account holder owns the securities and may direct the manager to trade them as desired.

In contrast, mutual funds are classified by investors’ [risk tolerance](https://www.investopedia.com/terms/r/risktolerance.asp) and the funds’ investment objectives, not by individual preferences. Also, investors purchasing shares of a mutual fund own a percentage of the value of the fund, not the fund itself or the actual assets in the fund.

### Transactional Aspects of Managed Accounts and Mutual Funds

Transactions in a managed account might take longer, as it can take days to fully invest or [liquidate](https://www.investopedia.com/terms/l/liquidate.asp) assets at specific times.

Conversely, shares of mutual funds may typically be purchased and redeemed as desired, daily. However, some mutual funds may carry penalties if redeemed before holding for a specified period.

The professional guiding a managed account may attempt to offset gains and losses by buying and selling assets when it is the most tax beneficial to the account's owner. In doing so, it could result in little or no tax liabilities on a significant profit for the individual. In contrast, mutual fund shareholders have no control over when portfolio managers sell the underlying securities, so they may face tax bites on [capital gains](https://www.investopedia.com/terms/c/capitalgain.asp).

## Important Considerations for Institutional Investors

In July 2016, managed funds were in the news, as several [institutional investors](https://www.investopedia.com/terms/i/institutionalinvestor.asp) simultaneously opted for them over the hedge funds that had been handling a portion of their portfolios. The investors wanted broader platforms, customized strategies, full control over their separate accounts, daily valuation, significantly lower fees, and full transparency when it came to those fees, as well as to the nature of the holdings themselves.

_Pensions & Investments_ claimed that the state-managed Alaska Permanent Fund Corp. in Juneau redeemed US$2 billion in [hedge funds](https://www.investopedia.com/terms/h/hedgefund.asp) to invest in a managed account so that investment decisions would be in-house. It was also reported that the $28.2 billion Iowa Public Employees’ Retirement System set up plans for moving $700 million in investments to managed accounts with seven firms in 2016.

> **Article Sources**
>
> 1.  Vanguard. "[Vanguard Personal Advisor Services](https://investor.vanguard.com/advice/financial-advisor)."
>     
> 2.  Fidelity. "[Fidelity Managed Accounts](https://www.fidelity.com/managed-accounts/overview)."
>     
> 3.  Internal Revenue Service. "[Publication 529, Miscellaneous Deductions](https://www.irs.gov/pub/irs-pdf/p529.pdf)," Page 5.
>     
> 4.  SoFi. "[How to Compare Robo Investing Fees](https://www.sofi.com/learn/content/robo-advisor-fees/)."
>     
> 5.  Pensions & Investments. "[Investors Warming up to Managed Accounts](https://www.pionline.com/article/20160711/PRINT/307119978/investors-warming-up-to-managed-accounts)."