Education/Advice | Published in June 2012

Understanding Managed Accounts

Mutual funds and managed accounts offer similar benefits: professionally managed portfolios with exposure to stocks, bonds and/or other securities.

By PLANSPONSOR staff | June 2012

Traditionally, a managed account was a special investment pool set aside for wealthier investors, to be invested with their specific needs in mind. Today, a growing number of retirement plans offer participants the chance to take the same investment approach—one that allows for more customization and likely will involve the plan’s financial adviser in its management.

How Are They Like Mutual Funds?  

The first thing to know about a managed account is that, like a mutual fund, it is a pool of money. The managed account option in your retirement plan could allocate your money to a pool of funds that are either part of your retirement plan menu or not a part—meaning you would be unable to access them individually within your retirement plan—or even to a pool of individual securities.

How Are They Different? 

Managed accounts are not subject to the same rules as mutual funds. So, while you can expect to get information about the investments in the managed account, it may look different from a mutual fund prospectus; it may resemble the high-level information you receive about the individual investment options available in your retirement plan, such as fund name, fees and returns. Of course, if you invest in mutual funds within the managed account structure, you may also receive a prospectus for the relevant funds.

Managed accounts tend to be more personalized than mutual funds, so considerations such as your individual tolerance for investment risk would, as noted above, be considered. Oh, and if you care about such things, you will not find your managed account price in the paper, though you will probably be able to learn your daily account values via your retirement plan provider’s website or call center, just as you can with mutual funds.

However, perhaps the most important advantage of putting your funds in a managed account over taking the traditional route—picking the mutual funds yourself, then trying to determine how much to invest in each—is that a managed account enlists the services of a professional to do that for you. That professional will keep an eye on those investment choices while you turn your attention to other things.

Which Is Better? 

It depends. Mutual funds are certainly handy, widespread and widely known, many with a long investment track record—and it is rare to find a retirement plan that does not include them on the investment menu. Managed accounts can be more flexible, and customized to your individual situation, while remaining competitively priced.