What's the difference between a managed account and mutual funds?

Asked by Erin

3 Answers

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Answered by Tracy Scott Burke, CFP®, ChFC® in Harrisburg, PA
A managed account is typically an account that is managed by an asset manager, as they select the funds and or individual securities to invest within the account. A mutual fund is similar, but done by a mutual fund company (think Vanguard, Fidelity, etc.) and the fund manager selects the individual stocks or securities to invest within the mutual fund. Managed accounts are typically more expensive route to invest but obviously gain the advantage of the investment expertise. | 10.14.13 @ 19:38
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$commenter.renderDisplayableName() — {comment} | 12.06.16 @ 00:55
Answered by Michael Hoffman, RFC, CLU, ChFCPRO+ in Grass Valley, CA
Hi Erin,

A Managed Account may provide the manger "tactical" capabilities which allow them to move the portfolio as the markets move. Example: in a declining equity market a move to cash, the opposite is also a feature. Account minimums are usually $25k - $100k. Most managed accounts are funded by a fee to the advisor without sales charges in or out of the account.

A mutual fund has lower minimums and is subject to sales charges in A, B or C shares. The fund manager is limited by the prospectus as to what they may purchase inside the fund. You may have to use multiple funds to properly diversify your portfolio. Sales charges may decrease by using the same "Fund Family". Some fund families offer tactical as well as strategic management styles.

Bottom line, look for "alpha" the return on the investment above the average or mean in each asset class you choose whether by Managed Account manager or Mutual Fund. | 10.14.13 @ 19:42
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$commenter.renderDisplayableName() — {comment} | 12.06.16 @ 00:55
Answered by Kim Miller, CFP®PRO+ in Redmond, WA
Hi - hopefully I can add something to the answers so far.

A mutual fund is an investment fund that takes in investor money and buys investment assets i.e., stocks, bonds, etc. that match the investment objective of the fund. If for example, the mutual fund's objective is "large company growth stocks", the manager will choose stocks that have what they consider to be "growth" characteristics among the universe of large company stocks - a good example of a "large company growth stock" is Apple Computer (symbol AAPL). Investing in such a fund gives you no say in the fund's operations or in the stocks in which the fund will invest. The mutual fund manager buys and sells as they see fit and the success or failure is shared by each investor in the fund to the extent of their ownership.

The term "managed account" has more than one meaning - it could be what's called a "separately managed account" in which you invest in an account that - like a mutual fund - follows a certain strategy, but may also give you the opportunity to have some input as to the investments made. For example, you can tell the manager "I don't want to own any tobacco companies" and they would have to abide by your wishes. A separately managed account is managed for you, whereas a mutual fund is managed for all the fund investors. It's like having your own private mutual fund. Fees may be higher or lower than a comparable mutual fund although fees for a separately managed account tend to be higher than for a comparable mutual fund. If income taxes are a concern, the investor may have input into how much buying and selling occurs to minimize income taxes and the separate account manager will usually engage in tax-loss harvesting at the end of the calendar year to minimize taxes if it is a taxable account.

The term "managed account" could also apply to an account (or group of accounts) managed on your behalf by an investment adviser such as some of the professionals on this site. It is possible to have a "separately managed account" and/or mutual fund/s within a group of accounts managed for you by an adviser. The bottom line is for the adviser to use the tools that are most appropriate for you in meeting your objectives. Best of luck!
| 10.14.13 @ 21:33
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$commenter.renderDisplayableName() — {comment} | 12.06.16 @ 00:55
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