• A managed account is a customized investment portfolio held by you but managed by a qualified financial professional.
  • Managed accounts offer access to expert financial guidance, unique assets, and alternative investment strategies that may better help you to achieve your goals.
  • Because of fees and some restrictions, consider the pros and cons when determining if a managed account is right for you.

In today's financial environment, many people don't have the time, interest, or experience to manage their money. Therefore, they may turn to financial professionals to help them pursue their financial goals.

This has led to a service called managed accounts, which offers investors access to both personalized guidance and professional portfolio management. Although the use of managed accounts is a rather common practice, many people still don't fully understand what they are and how they can be incorporated into their investment strategy.

Here's what you need to know about managed accounts.

What Is a Managed Account?

A managed account is an investment portfolio held by an individual — i.e., you — but managed by a qualified financial professional.

How Do Managed Accounts Work?

Managed accounts begin with a financial professional assessing your goals and tolerance for risk. Based on your responses, they will then pick assets that fit your profile and invest in them on your behalf.

Who Owns a Managed Account?

You retain full ownership of a managed account. The securities used to assemble your portfolio belong to you directly. This may provide you with some special advantages, such as more portfolio transparency and the opportunity to conduct tax-loss harvesting.

Key Features and Benefits of Managed Accounts

There are a lot of advantages to using a managed account over types of self-directed investment accounts and investment products.

Personalized Investment Strategies

The financial professional tailors the plan to you. This includes discussing your investment objectives, financial needs, tolerance for risk, and any specific preferences.

Professional Expertise and Ongoing Advice

After assembling your portfolio, your financial professional may maintain it by:

  • Conducting trades on your behalf
  • Rebalancing to your target asset allocation
  • Issuing performance reports

All the while, you may also be able to lean on the financial professional for their guidance and expertise.

Convenience and Time Savings

A managed account removes the day-to-day research and maintenance from the investing equation, meaning you may spend less time focused on your investments and more time focused on your family, your job, or other interests.

Under the supervision of the financial professional, it may not be necessary for you to take action or stress about reacting to the latest economic news. That may allow you to take a more passive approach, knowing that your portfolio is in good hands.

Risk Management and Exclusive Investment Options

As a PNC client, you'll have access to proprietary asset allocation models and a mix of professionally screened funds and managers.

This may include investment opportunities and products not accessible to the general public. Together with the financial professional, they can help you understand the potential risks and rewards connected to these opportunities and whether they'd be a good fit for you.

Common Types of Managed Accounts

There are three main styles of managed accounts.[1]

Individually Managed Accounts

An individually managed account (IMA) is the most basic type of managed account arrangement. Clients will delegate investment decisions to their financial professional to help them assemble a portfolio of individual securities such as stocks and bonds consistent with their chosen investment strategy.

Separately Managed Accounts

A separately managed account (SMA) is an alternative strategy utilizing pre-constructed portfolios. Essentially, instead of your financial professional picking the mix of investments, portfolios will be created by an SMA manager. These are often models that fit commonly held client objectives, such as:

  • Retirement income while maintaining account preservation
  • Maximum growth with limited volatility
  • A desire to hold specialty assets such as real estate, cryptocurrency, preferred securities, or tax-efficient holdings.

Similar to an IMA, the account manager will help you determine which SMAs are suitable. They will then acquire the assets to mirror these SMA models and maintain them going forward.

Note that although an SMA may sound very similar to a mutual fund, it’s not. Investing in a mutual fund means buying shares of a pooled group of investments. On the other hand, SMAs (as the name implies) are “separate” and allow you to hold the securities directly.

Unified Managed Accounts

A unified managed account (UMA) takes the concept of SMAs to the next level. With a UMA, your financial manager may combine multiple SMAs, mutual funds, ETFs, and individual securities into a single brokerage account. This may enable better and more unified account management tailored to your individual needs.

Potential Drawbacks and Considerations

While managed accounts can offer many unique advantages, there may be some aspects to be aware of before committing to one.

Fees and Costs

In exchange for the service of a managed account, the financial professional may charge a fee. This may be a percentage of the assets under management (AUM) and is typically paid quarterly.

Note that this is oftentimes similar to the payment structure used by fee-based financial advisors. It’s often preferred because it incentivizes overall portfolio management over transaction-based commissions.

Minimum Investment Requirements

PNC offers two types of managed accounts, each with its own minimum initial investment requirement:

Reduced Direct Control

Even though professional account management can be a positive experience, it may be challenging for some investors — especially those who have spent years or even decades building up their wealth. The financial professional may recommend assets or make trades that could differ from how you might have managed the account. However, rest assured, these day-to-day activities are carried out on your behalf to align with your financial objectives.

Liquidity and Access to Funds

In some cases, a managed account may require you to lock up some or all of your assets. This may be due to the nature of the investments involved (such as real estate or private equity). If your managed account has accessibility requirements, then it may be worthwhile to consider retaining a small portion of funds that you can hold separately in case of emergencies.

Is a Managed Account Right for You?

There's a lot to like about managed accounts. However, they may not necessarily be a good fit for everyone.

To know if one is right for you, consider the following:

  • Your investment goals: What is it that you want to accomplish with your money that you're not currently? Could a managed account help provide you with a more tailored strategy and better investment opportunities?
  • Desired level of involvement: Are you someone who knows you should be doing more to optimize the performance of your portfolio, but you don't have time? At the same time, would you be able to relinquish control over the day-to-day operations and trust the financial professional to act on your behalf?
  • Asset size: Do you have enough assets to meet the minimum account requirements?

Final Thoughts

A managed account offers a disciplined approach designed to help you achieve your financial goals. Best of all, you don't need a large pool of assets to get started: At PNC Wealth Management, whether you're starting with an initial investment of $5,000 or larger resources, we can help you determine which managed account is right for you.