Lesson type: Think like an investor

Is there a better way to take control of your investments?

Morgan Stanley research predicts Australia’s managed account sector will hit $60 billion by 2020 – but what actually are managed accounts, and what can they do for you?


What is a managed account?

Put simply, a managed account is a way of packaging up a collection of investments – whether they’re shares, exchange-traded products or even managed funds – so that a “professional investment manager” (this can be your adviser, if they have the proper authorisation) can make investment decisions on your behalf without having to seek your written permission every single time.

In theory, this provides a significant amount of transparency (as you retain direct or beneficial ownership of the assets and can see what’s in the portfolio at any given time) and a level of nimbleness which allows you and whomever is managing the portfolio to capitalise on investment opportunities as and when they arise.

Who are they suitable for?

It’s worth noting that not all managed accounts are created equal – aside from the fundamental question of who’s going to be trusted with managing your investments, there are also different ways a managed account can be structured.

Here are three of the commonest industry terms for managed accounts and what they mean:

  • A separately managed account (SMA) is based on a model portfolio of stocks managed on behalf of a collection of investors; if a change is made to the portfolio, this will affect all investors in the SMA.
  • An individually managed account (IMA) is similar to the above except managed on behalf of a single client, tailored to factor in tax implications and so on.
  • Finally, a managed discretionary account (MDA) can be considered the overarching structure for the above two concepts: the legal provision you give an investment manager to make decisions on your behalf.

Whether a managed account is suitable for you will depend on a range of factors, chief among which being the specific arrangements made and authorisations you provide with respect to your investments.

Things to consider

This is a very brief rundown of what a managed account is and why they’ve increased in popularity over the past few years, but as with any decision about your money it’s important to consider the legal implications and financial risks associated with moving to a structure like this – ideally with your financial adviser.

If you’re not looking for greater control over your investments and/or don’t want to carry the risks associated with signing away discretion to a third party, managed accounts may not be the right option for you. Ultimately, it will be up to you to decide whether the benefits outweigh the potential costs associated with varying portfolio valuations, regulatory changes and other issues.


The opinions expressed in this content are those of the author shown, and do not necessarily represent those of No More Practice or its related entities. This information is general in nature and does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. To view our full terms and conditions, click here.

 

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