What's the Difference Between Managed Vs Full-Service Brokerage Accounts?
Professional money management introduces a vast world of contrasting brokerage accounts, shifting terminology and a constant demand to keep up with the pace of changing stocks, trades and assets. For some people, finding a professional to manage their money is the best option for their financial situation, which leads to learning about the differences between a managed and full-service brokerage account.
If you’re considering a brokerage account for your finances, then you may have heard the terms managed brokerage accounts and full-service brokerage accounts. While they do appear similar in their nature, the differences are striking, and if you’ve explored the world of finance, you know that even the smallest differences can matter the most.
Managed Brokerage Account
A managed account, which is sometimes referred to as a wrap account, is an investment service that bundles investments together on your behalf. The account is owned by a single investor, who’s a professional money manger who oversees its details. The money manager makes investment decisions that will ultimately help fulfill the client’s financial goals, risk tolerance and asset size. They’re bound by a fiduciary duty to their client and by law, must act in their client’s best interest or they could face civil or criminal penalties.
Managed brokerage accounts come with a price as you’re essentially paying a skilled overseer to make key investment decisions on your portfolio for you. These money managers will often ask for six-figure minimum investments in order to manage accounts, which are then compensated by a fee. Naturally, the higher the fees in a managed brokerage account, the lower the return you’ll see.
With the amount of fees involved in a managed brokerage account, it can be a real challenge to find one that will yield a beneficial return. In fact, the way these accounts function tend to be that the higher mutual fund, the higher the subsequent fees. The specifics of how much you’d be paying in fees in a managed brokerage account will vary, as each one is unique to the person’s financial goals, assets and risks. However, if the advisor overseeing the account is using higher-fee funds with a lot of trading involved, you could be paying up to 2-3% in fees a year. In comparison, an index fund would charge about .10% - .35% in fees per year.
With the fees, are the benefits that a managed brokerage account can offer? Yes, with oversight from a professional advisor, your specific financial needs would be addressed, meeting your objectives through your account manager’s educated, professional decisions. Managed account trades can also be done in a way to minimize tax liability, whereas in a mutual fund with taxable capital gains, investors have little to no control.
Full-Service Brokerage Account
A full-service broker and full-service brokerage accounts entail a licensed financial firm that is able to provide a slew of professional services to its clients like retirement planning, research and financial advice, tax planning and more. Full-service brokers work on a commission basis and are more expensive to retain than a discount broker - a stockbroker who buys and sells at a reduced commission rate without providing investment advice.
Full-service brokers can lend their expertise, experience, and education to their clients on any type of financial issue they need assistance on like estate planning, taxes or otherwise. These types of brokers are financial advisors, tailoring their support to fit their clients’ unique needs and financial goals. Like a managed brokerage account, a full-service brokerage account has a professional overseeing their client’s portfolio, manage investments, facilitate trades, administer advice and serve as the main point of client for their client concerning the account.
Firms that designate themselves as full-service often are equipped with a large research department, with skilled financial analysts who provide detailed reports to help brokers advice their clients. These firms also have investment banking sectors that can provide specialized opportunities and networking capabilities to clients as well like initial public offerings, senior notes, preferred stock options, limited partnerships and other investments and products. Another benefit of a full-service brokerage firm is that they have brick and mortar offices for clients to meet with their designated representatives.
The Key Differences
It sounds as if a full-service brokerage account and a managed brokerage account are quite similar, and you’re right. Their duties are in line with one another and they share a singular purpose of overseeing their client’s financial portfolio, ensuring that the client is guided and advised to their best efforts.
The difference between the two is that a managed brokerage account is owned by a single investor, either an institutional or retail investor or an individual, whereas a licensed financial broker-deal firm operates a full-service brokerage account. However, as discussed previously the roles do remain similar: manage the client’s portfolio. A managed account broker does have the authority to buy and sell assets without the client’s approval, but they must do so to their best interest.
If you’re looking for a complete hands-off experience when it comes to your assets and investments, then you may want to consider a managed brokerage account. Your account manager will execute decisions on your behalf, but be wary when searching for the right one for the job because the fees can and will negate any earnings from that account.
For those wanting to be more involved in their finances as well as to be on the receiving end of expert advice, then a full-service brokerage account could be the answer. If you don’t have time to stay updated on all of the policies and laws of financial planning issues like tax or estate planning, your full-service brokerage account manager can assist you with that. A full-service brokerage account is just that: full-service.
However, with both managed and full-service accounts, you can expect to pay a hefty price with the advice and management that comes along with them. Financial planning of any sort is expensive, and so don’t be surprised if you have to keep searching around to find ones with the least detrimental fees. This will especially true for managed brokerage accounts, which are known for their high fees. Consider the factor of paying high fees before you make these decisions because you may not be coming out with return to justify it.
There are other options aside from these two types of brokerage accounts you can consider when it comes to your finances. Discount brokers are an excellent alternative for those wanting to save money but still want a professional to assist in executing trades for them.
If you do opt to have a managed brokerage account, make sure in the initial meetings you make your financial goals clear beyond absolute so your account manager can execute decisions to meet them. For a full-service brokerage account, take advantage of all the advice and expertise your account representative has to offer because after all, you’re paying for their experience.