That means you won't necessarily get a phone call, email, or other communication that your broker is going to make a trade in your account. Instead, you'll usually just find out about it after the fact when you check your account or get your brokerage statement. Various brokerage companies offer different types of managed broker accounts. With some, your broker will select a group of individual stocks, dividing your investment capital across them in order to build a diversified portfolio.
Most brokers will have an internal team of professional portfolio managers whose job it is to evaluate many different stocks and pick the ones that the team believes have the best prospects for success. The Ascent's picks for the best online stock brokers Find the best stock broker for you among these top picks. However, other managed broker accounts specialize in investing solely in mutual funds or exchange-traded funds. Here, the use of funds automatically makes the portfolio well-diversified, and the nature of the management services provided centers on the decisions of how much money to allocate to each fund rather than picking specific winning stocks.
Both approaches have their pros and cons, but as you'll see below, it's important to ask the right questions to make sure that you're not getting taken advantage of by a prospective brokerage company.
If you want to have the best possible managed broker account, you'll want to look for the following characteristics:. If you want exposure to individual stocks, then you won't want to deal with a brokerage company that only offers mutual funds in its managed accounts.
Similarly, if you're happy with a mutual fund option, then you might be more comfortable with the diversified assets that'll be in your portfolio than you would be with a portfolio manager picking individual stocks. You might not perform as well as the best-case scenario, but you might very well outperform the realistic scenario. Making it work Think practically about what you struggle with when it comes to your k.
If you want to take the investment process out of your hands entirely, you might want to consider a managed account or target-date fund. Compare the costs and try to size up the pros and cons, and go from there. If you're looking for help and guidance, a managed account might also offer you support, but you might find it through your k 's designated advisor, if you have one, or from an outside financial planner.
Fee-only financial planners can do portfolio assessments for you and have no strings attached or conflicts of interest, so that's a possible route. If you decide you'd like holistic help, a full-service financial advisor might be a good option. Of course, you pay for these services. In the strictest sense of investment performance, they might not be worth it -- but if you are struggling on your own or making a lot of investment mistakes, they might very well be worth it to you. Discounted offers are only available to new members.
Stock Advisor will renew at the then current list price. Investing Best Accounts. All of these things can affect the stocks-bonds allocation the managed account recommends, as well as the managed account firm's assumptions about the performance of different asset classes.
You may also be able to further refine that asset allocation by providing information about your financial goals, what sort of risk level you're comfortable with, the investments you hold outside your k and when you plan to retire.
But managed accounts in some cases can do more than invest your savings. Some may be able to provide advice or guidance that can help you determine whether you're financially prepared to retire or help you decide how to draw on your nest egg in retirement. Some may provide online or phone access to representatives who may be able to answer questions or offer advice on specific situations. Since a managed account can build a portfolio based on more than your age and also provide more than just investing advice, it may seem the obvious choice.
But there's also the matter of cost. Although the cost of both target-date funds and managed accounts can vary widely, managed accounts are typically more expensive. According to a Government Accountability Office report , managed accounts charge fees that range from 0.
So depending on what the managed account in your plan charges, you could be giving up a sizable share of investment returns. A recent Morningstar study cited stats showing that managed accounts may be able to overcome the drag of higher years with higher returns. But I don't consider the evidence very compelling.
Separate account investors, thanks to individual cost basis on the underlying securities, would not be liable for capital gains generated prior to the day they invested in the portfolio. One of the difficulties inherent in making an apples-to-apples comparison among investment offerings is that fee structures vary.
This is even trickier for SMAs than for mutual funds, for reasons explained below. Mutual fund fees are fairly straightforward. The key number is the net expense ratio , including the management fee for the professional services of the team that runs the fund , miscellaneous ancillary expenses, and a distribution charge called a 12 b 1 fee for certain eligible funds.
Many funds also have different types of sales charges. Funds are required to disclose this information in their prospectuses and show explicitly how the fund expenses and sales charges would affect hypothetical returns over different holding periods. Investors can easily obtain a fund prospectus from the fund's parent company, either online or through the mail.
A prospectus is not issued for a separate account. An investor can obtain this document by contacting the manager, but they tend not to be as widely available through unrestricted online downloads as mutual fund prospectuses.
Moreover, the published fee schedule in the ADV Part 2 is not necessarily firm—it is subject to negotiation between the investor or the investor's financial advisor and the money manager. Often, it is not a single fee but a scale in which the fee expressed as a percentage of assets under management decreases as the asset volume the amount invested increases.
Because SMAs do not issue registered prospectuses, investors or their advisors need to rely on other sources for investigating and evaluating the manager. In investor-speak, this is referred to as due diligence. Comprehensive due diligence will elicit sufficiently detailed information regarding all of the following areas:.
A manager should be prepared to share performance data annual and preferably quarterly returns achieved since the inception of the strategy.
The information is contained in a composite —a table showing aggregate performance for all fee-paying accounts in that strategy. A good question to ask here is whether the composite complies with the Global Investment Performance Standards set by the CFA Institute and whether a competent third-party auditor has provided a letter affirming compliance with the standards.
Each manager has a unique investment philosophy and method of applying that philosophy to an investment approach.
You will want to know whether the manager has a more active or passive style, a top-down or bottom-up approach, how alpha and beta risk are managed, the strategy's performance benchmark , and other pertinent information. Find out who makes the decisions and how they are implemented; the roles and responsibilities of portfolio managers, analysts, support staff and others; who's on the investment committee; and how often it meets.
Then sell discipline and other key aspects of the process. Some managers have extensive in-house trading platforms, while others outsource all non-core functions to third-party providers like Schwab or Fidelity. You also need to understand transaction expenses and how they can affect your bottom line. Another useful area of information here is client and account services. Among other things, you can find out about net client activity—the number of clients joining and leaving the firm.
How the firm is organized and how it pays its professionals—especially the managers whose reputations and track records are the big draw—are extremely important aspects of the investment. Understand the calculations behind incentive compensation. Are the manager's incentives aligned with those of the investor?
This is an essential feature. Red flags include prominent infractions with the SEC or other regulatory bodies, fines or penalties levied and lawsuits or other adverse legal situations. The SEC considers separate account managers to be investment advisors subject to the provisions of the Investment Advisors Act of Much of this information can be obtained from the manager's Form ADV Parts 1 and 2 Part 2 includes more details on strategy, approach, and fees as well as biographical information on the principal team members.
Performance data should be available directly from the manager, either online or through personal contact with a management representative. The representative should also be able to coordinate phone or in-person meetings with key team members and direct your questions regarding compliance and other issues to the appropriate personnel.
Given the account minimums, separately managed accounts are not for every investor.
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