A "managed account" is an Investment Account traded or managed by a portfolio manager under a fee-based arrangement (usually a fixed annualized percentage of the assets under management [AUM] and/or a performance or incentive fee based on the total profits generated by the manager).
The definition provided in this overview does not specify which investments or assets are part of the managed portfolio, as the "managed account" itself is just a vehicle to give an experienced trader the ability to manage individual investments under one account on behalf of the client.
Nevertheless, the Wikipedia definition is biased towards traditional "stock and bond" investments. Their definition names firms like Merrill Lynch and Bank of America as the investment managers responsible for the "retail managed accounts industry." These firms only specialize in providing traditional investments under a managed wrapper, and not asset classes like forex (FX). The Wikipedia definition also specifies that his popular product is only for "High Net Worth (HNW)" Investors.1 This is far from the truth, since there are many managed FX programs out there that accept non-HNW clients with minimums in the vicinity of US$10,000.
The Investopedia definition is also flawed. They mention that the investor has a say in the management of the actual account, when in reality, it is the truly portfolio manager who is in charge of making the trading decisions.2
Managed Accounts Overview – SMA, MSA and UMA
Managed accounts started and were always created to allow an investor to have a separately managed portfolio of individual securities or asset classes, unlike a mutual fund where an investor owns shares of the actual fund, which is the one that owns the individual investments (typically a very large number of them). That is why the name "separately managed accounts" (SMA's) came about (as well as "separate account" or "private account").
This objective to own "separate" and more individualized portfolios was a great one. Unfortunately, when it comes to traditional investments, managed accounts have come full circle. Initially, they started as SMAs; then evolved into MSAs, or Multiple-Strategy Accounts, where additional portfolios and strategies from one or more managers were combined in the same account for greater diversification. Finally, the SMA gave birth to the Unified Managed Account (UMA). Instead of a separate portfolio of individual investments or asset classes, the UMA holds multiple SMAs and even mutual funds! In conclusion, the investment vehicle that was created to compete with mutual funds and offer a better solution for investors, now contains, thanks to traditional brokerage and investment firms, that same investment they were trying to improve! How ironic!
Despite this fact, managed accounts that use forex or foreign exchange as an asset class, still remain true to the SMA definition.
- Managed Account, Wikipedia.org, 2011.
- Managed Account, Investopedia.com, 2012.