A managed account is an investment account where a professional money manager makes buying and selling decisions on your behalf

You own the account and the money in it, but you hire someone—usually a financial advisor, investment firm, or bank—to decide what to buy, when to buy it, and when to sell. You give them written permission to trade without asking you first for each decision. They charge you a fee, usually a percentage of the money they manage, and they're legally required to act in your interest.

The main difference from a brokerage account where you pick your own stocks is that you're paying for someone else's judgment and time. The main difference from a mutual fund is that a managed account holds actual securities in your name, tailored to your situation, rather than pooling your money with thousands of other investors.

Key Takeaways

  • A managed account gives a professional permission to buy and sell investments for you, and you pay them a fee based on how much money they manage.
  • The manager must follow a written agreement about your goals, risk tolerance, and any restrictions you set—they cannot ignore it to chase higher returns.
  • Your account is held in your name at a custodian (usually a bank or brokerage), so your money is protected even if the manager goes out of business.
  • Managed accounts typically require a minimum deposit, often $25,000 to $100,000 or more, depending on the firm.
  • You receive statements showing what you own and what the manager bought or sold, and you can fire the manager and move your money at any time.

How the manager gets permission and what they can and cannot do

Before a manager can trade in your account, you sign a document called a discretionary agreement or investment advisory agreement. This spells out your investment goals (retirement, education savings, income), your risk tolerance (how much you can stomach losing in a bad year), and any restrictions (no individual stocks, no cryptocurrency, no companies in certain industries). The manager agrees to stay within those bounds.

Once you sign, the manager can buy and sell without calling you first. They do not need your permission for each trade. But they cannot ignore what you wrote down—if you said "no individual stocks" and they buy Apple shares anyway, that is a breach of the agreement and you can sue them or fire them and move your account.

The manager also has a legal duty called a fiduciary duty, which means they must act in your interest, not theirs. They cannot steer you into high-fee investments because they earn a bigger commission, and they cannot trade excessively just to rack up commissions. If they violate that duty, you have grounds to recover damages.

What you pay and how fees are structured

Most managed accounts charge an assets under management (AUM) fee, which is a percentage of your account balance each year. This might be 0.5% to 2% annually, depending on the firm, your account size, and the complexity of your portfolio. On a $100,000 account at 1% per year, you pay $1,000 annually, usually deducted from your account quarterly.

Larger accounts often get lower percentages—a $1 million account might pay 0.75% instead of 1.5%. Some firms charge a flat annual fee instead ($2,000 to $10,000 per year, regardless of balance), and some charge a combination of a base fee plus a percentage.

On top of the management fee, you may pay transaction costs when the manager buys or sells (though many custodians now offer commission-free stock and ETF trades). You also pay the expense ratios of any mutual funds or ETFs held in the account—those are separate from the manager's fee and come out of the fund itself.

Who holds your money and what happens if the manager fails

Your account is held at a custodian, which is usually a large bank or brokerage like Fidelity, Charles Schwab, or TD Ameritrade. The manager does not hold your money directly. This separation is crucial: if the manager goes bankrupt or commits fraud, your money is still safe at the custodian in your name.

The custodian also provides account statements, confirms trades, and handles tax reporting. You can see exactly what you own at any time by logging into the custodian's website or calling them. If you lose trust in the manager, you can fire them and move your account to a different manager or manage it yourself—the custodian will transfer your securities to whoever you choose.

Money held at a bank custodian is also covered by FDIC insurance up to $250,000 per account type (checking, savings, money market, etc.). Securities held at a brokerage custodian are covered by SIPC (Securities Investor Protection Corporation) up to $500,000 per account if the custodian fails, though this does not protect you from the manager's bad investment decisions.

Managed accounts versus robo-advisors and mutual funds

A robo-advisor (like Betterment or Wealthfront) is cheaper and requires a lower minimum. It uses algorithms to pick and rebalance your portfolio rather than a human manager. Robo-advisors typically charge 0.25% to 0.50% per year and may have no minimum or a $500 minimum. A managed account with a human manager costs more but may offer more customization and the ability to hold individual stocks or specific securities you want to keep.

A mutual fund pools your money with thousands of other investors and buys a fixed basket of securities. You own shares of the fund, not the underlying stocks. Mutual funds charge expense ratios (usually 0.1% to 1% per year) but no separate advisory fee. A managed account holds actual securities in your name, so you can see and control exactly what you own, and the manager can tailor the portfolio to your specific tax situation or preferences.

A self-directed brokerage account costs the least (often just commissions on trades, now often zero) but requires you to make all decisions. You pay nothing for advice unless you hire a financial advisor separately, and you get no ongoing management.

What to look for when choosing a managed account provider

Check whether the manager is a registered investment advisor (RIA) with the SEC or your state. This means they have passed background checks and must file regular disclosures about their fees, conflicts of interest, and disciplinary history. You can look up any advisor's registration and history on the SEC's Investment Adviser Public Disclosure website (adviserinfo.sec.gov) or your state's securities regulator.

Ask about the minimum account size, the fee structure, and whether fees are negotiable for larger accounts. Request a copy of their Form ADV Part 2, which is a detailed disclosure document that explains how they invest, what they charge, and what conflicts of interest they have. Read it before you sign anything.

Find out who the custodian is and confirm it is a well-known, regulated institution. Ask whether the manager uses a model portfolio (a standard mix of investments for all clients) or customizes each account. Ask how often they rebalance (buy or sell to keep your portfolio in line with your goals) and whether they do tax-loss harvesting (selling losing positions to offset gains and reduce your tax bill).

When a managed account makes sense and when it does not

A managed account works well if you have at least $25,000 to $50,000 to invest, you want professional oversight but do not want to pick individual stocks, and you are willing to pay a percentage fee for that service. It also works if you have a complex situation—multiple income sources, real estate, a business, or significant tax considerations—where customization matters.

A managed account may not make sense if you have less than $25,000 (the minimums are usually too high), if you enjoy picking your own investments and have the time to do it, or if you are comfortable with a robo-advisor's lower cost and algorithmic approach. It also may not make sense if you are paying a high fee (over 1.5% per year) without clear justification, or if you plan to access your money within a few years (the fees eat into short-term returns).

Frequently Asked Questions

Can I tell the manager not to buy certain stocks or industries?

Yes. Your investment agreement can include restrictions—no individual stocks, no energy companies, no cryptocurrency, whatever you want. The manager must follow those restrictions. If you change your mind later, you can amend the agreement in writing.

What happens if the manager makes a bad investment decision?

Bad decisions happen, and you bear the investment risk—the manager is not liable for losses caused by normal market downturns or reasonable investment choices that did not work out. But if the manager violates your agreement, ignores your risk tolerance, or acts recklessly, you can fire them and potentially recover damages through arbitration or court.

Can I withdraw money whenever I want?

Yes. Your money is yours. You can request a withdrawal at any time, though it may take a few business days to settle. Some accounts have minimum holding periods or surrender charges if you withdraw within a certain timeframe—check your agreement. When you withdraw, you may owe capital gains tax on any profits.

Do I need a managed account if I already have a 401(k) at work?

Not necessarily. A 401(k) is for retirement savings and has tax advantages. A managed account is for money outside retirement accounts. You might use both—a 401(k) for retirement and a managed account for other goals like buying a house or funding education.

What is the difference between a managed account and a financial advisor who charges hourly?

An hourly advisor charges you for time spent planning or answering questions but does not make trades in your account. A managed account advisor makes trades on your behalf and charges a percentage of assets. Some advisors do both—they charge hourly for planning and also manage your account for an AUM fee.