What is Managed Money?
Managed money is a means of investment whereby investors rely on the investment decisions of professional investment managers rather than their own. These investments will incur fees that can vary by the type of professional money management utilized.
Understanding Managed Money
Managed money offers investors many benefits and advantages. Essentially, investors with managed money believe they can earn higher returns by employing someone else to professionally advise them on their investments. Managed money also requires less personal investment analysis and fewer transactional costs from buying and selling individual securities.
In the investment market, investors have a few different options for allocating their investments among professionally managed service providers. Financial advisors, wrap accounts and managed funds are three of the primary options investors look to for managed money services.
- Managed money refers to a strategy in which investors use the services of professional investment managers, who charge fees for their services.
- Financial advisors, wrap accounts and managed funds are three examples of professional investment managers used by investors.
Financial advisors can offer full-service portfolio management for investors. This can include holistic portfolio management that determines asset allocation percentages and chooses individual funds and securities for the portfolio. Many investors are actively involved in their portfolio’s investment decisions, but some investors will rely completely on the financial advisor to manage all of their money. With these types of services, financial advisors will charge an annual fee based on the client’s assets under management. Annual fees can range from 0.50% to 5% with lower fees typically available for investors with higher levels of assets under management.
Wrap Accounts and Robo Advisors
Wrap accounts and robo advisor platforms are other types of managed money. These accounts often provide investors with investment allocations and suggestions based on their risk profile. Wrap accounts can be offered through all types of brokerage services and often include a wide selection of mutual funds managed for a small advisory fee. Robo advisor platforms are primarily focused around automated advice, and their selections typically include exchange-traded funds. Fees for robo advisors are generally lower than most standard mutual fund wrap account programs.
Managed funds are another type of managed money. Across the investment industry, investors have a wide variety of managed fund structures to choose from with many different investment objectives and styles. Managed funds can allow an investor to build a portfolio around a particular investing style while also receiving the benefits of diversification and professional management. Managed funds will also include a management fee as part of their total annual operating expenses. The management fee portion of the expenses can vary from 0.15% to 2.50% depending on the management style.
Example of Managed Money
Rahul has $100,000 in savings that he wants to invest into a portfolio of diverse assets. For example, he has recently discovered cryptocurrencies and wants to put a portion of his money into the risky asset class. At the same time, he also wants to pour some of his cash into passive investments that will provide him with sustained and regular income.
Rahul consults with his financial advisor to construct a portfolio. While she cannot recommend cryptocurrency-related investments, Rahul's financial advisor details the risks for cryptocurrency investors. She also provides him with avenues to follow up on his research for this asset class. She also provides him with options for exchange-traded funds and mutual funds that will help him earn regular income.