What is Managed Money?

Malcolm Tatum

Managed money is an investment strategy in which the investor delegates the purchase and sale of securities to a third party, such as an agent or a broker. In return for managing these activities, the investor pays a set fee to the authorized party. The fee may be paid annually, or be structured to allow for semi-annual, quarterly, or monthly payments. A managed money account is sometimes known as a wrap account.

Man climbing a rope
Man climbing a rope

There are several benefits associated with using a managed money approach. One has to do with time. For investors who are busy with careers, family, or other issues, having someone actively manage their investment activity increases the chances of earning the highest returns from their investments. At the same time, the agent is likely to have a great deal of experience and expertise with investment strategies, a factor that is especially attractive for investors who do not feel they have the background to make the best investment decisions.

There are several different approaches to the managed money approach. One strategy is to focus on mutual funds. In this scenario, the investor places money in the fund, and the managers of the fund make all the investment decisions, based on the terms and conditions that govern the operation of the fund. In return, a specific percentage is deducted from the investor’s account on a periodic basis, as determined in the mutual fund contract.

A separate account is another possibility that is often used with a managed money strategy. In this scenario, the investor secures a professional money manager that takes over the portfolio management process. With this approach, the investor has the ability to establish guidelines for investing with the manager. For example, if the investor prefers to focus on opportunities that carry a relatively low degree of risk, the manager will buy and sell securities accordingly, and refrain from any transactions involving investments that are outside the client’s comfort zone.

For investors who do want to have some involvement in making investment decisions, a fee-based brokerage account is an excellent managed money strategy. The investor pays a set fee to the brokerage, and has access to an unlimited number of trades during the period covered by that fee. Provided as part of the service is access to a financial advisor who is able to provide suggestions for trades, based on the personal preferences of the investor.

As an alternative to mutual funds, a managed money approach may focus on exchange traded funds, or ETFs. The typical ETF has a lower expense ratio that most mutual funds, a factor that may be very appealing to investors who tend to watch costs very closely. At the same time, this approach offers the professional money management found with mutual funds, and thus allows the investor to build a portfolio while focusing on other important issues.

While effective for many investors, the managed money approach is not ideal for everyone. Investors who prefer a hands-on approach to investment decisions are more likely to prefer strategies that allow them to be involved in each step of the investment process. By working with a financial advisor to identify the goals of the investor, as well as his or her preferences in terms of making investments, it is possible to determine if one of these managed money strategies is viable, or if some other approach would be the best choice.

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