What a managed investment account is, what it costs, and who it actually fits

In plain terms: you choose the strategy, a professional runs it

A managed investment account is an account in your name where you agree on a goal and a strategy with an adviser, give the firm permission to buy and sell within that strategy, and pay an ongoing fee based on the account's value instead of a commission on each trade. It tends to fit people who have a meaningful sum to invest, want it monitored and adjusted without making every decision themselves, and plan to stay invested for years. It tends not to fit someone with a small balance or someone who prefers to pick a few funds and rarely touch them. Whether it is right for you comes down to the fee, what the fee covers and how much ongoing help you actually want.

I offer managed accounts through Primerica Advisors, where I am an investment adviser representative, and I am also a registered representative of PFS Investments Inc. for brokerage accounts. Because I can open either kind, the question I spend the most time on with families around Dallas is not which fund to buy but which kind of account they should be in at all. This guide walks through that question the way I would at a kitchen table.

What actually happens inside the account

The SEC's investor education office describes the common version, called a wrap fee program, as an account where you pay a single bundled fee for investment advice, brokerage services, administrative expenses and other costs. These programs go by many names, including asset allocation program, asset management program, uniform managed account and separately managed account, but the defining feature is bundled management and trading for one fee.

Primerica Advisors offers a managed account wrap fee program marketed as the Lifetime Investment Program, according to the firm's disclosures page, and its relationship summary (Form CRS) is a clear illustration of the moving parts. The firm selects asset managers who create and maintain the strategies and reviews those managers quarterly. Your advisor helps you define your objectives and choose among the managers and strategies. You give the firm discretion to buy and sell within the strategy you picked, and the account is monitored so it stays aligned with that choice. The firm says it will not move you from one strategy to another unless you direct it to, except in limited circumstances described in its Form ADV.

• You: set the goal, the time horizon and how much risk you can live with
• The adviser representative: explains the options, recommends a strategy and revisits the fit as your life changes
• The asset manager: runs the strategy day to day and decides what to buy and sell
• The custodian: holds the assets in a brokerage account in your name
• The firm: monitors the account and sends regular performance reports

How the fee is charged, and what it does and does not cover

In an advisory account, you pay a percentage of what is in the account, whether or not anything is bought or sold. FINRA's investor guide on choosing an account type puts it that way: advisory fees are usually a percentage of the assets in your account, charged periodically, and they apply regardless of trading. Brokerage fees, by contrast, are generally transaction-based, a commission or markup when you buy or sell.

For the Primerica Advisors program specifically, the Form CRS says the fee is calculated as a percentage of the assets under the schedule in your advisory agreement, assessed monthly in arrears and deducted automatically. It is a wrap fee covering the bundled advice, brokerage transactions and custody, which the firm notes is typically higher than a fee for advice alone. If your strategy holds mutual funds or exchange-traded funds, the funds' own annual expenses come on top, and the fee varies with the models you select. I do not quote a percentage in an article because it depends on the schedule and the strategy; ask for the exact figure, in dollars and in writing, before you sign.

The SEC bulletin adds a useful caution. Because services are bundled, your total cost can be more or less than paying for them separately: a wrap fee may work out cheaper when there is a lot of trading that the fee covers, and more expensive when there is little or no trading. You can also pay costs outside the wrap fee, such as fund expenses, markups or spreads, or brokerage fees when a manager trades through a firm outside the program.

Managed account or brokerage account: the honest comparison

The choice is less about which is better and more about how you want to be served. FINRA suggests weighing how often you trade, the fees and expenses, and the level of service you want. An asset-based fee may cost more than commissions if you buy and hold for long periods, while it can make sense if you want ongoing advice or someone to make investment decisions for you.

Primerica's disclosure shows the service difference plainly. On the brokerage side, the firm says it does not monitor your brokerage investments, though it will review the account at your request, and you make the final decision on every purchase or sale. On the advisory side, the account is monitored and the asset manager adjusts the strategy. The same document explains the pay trade-off for its representatives: yearly advisory compensation is typically less than the upfront compensation on the same amount in mutual funds, but if you keep the managed account long enough, the advisor's total over time will be higher. You deserve to hear that conflict directly, and I would rather you read it here first.

A brokerage account or a self-directed IRA often fits better when the balance is small, when you are adding a modest amount each month into a few long-term funds, or when you enjoy handling the decisions yourself. I walk through that path in opening a Roth IRA on your own. A managed account tends to fit when:

• You have a lump sum and do not want to manage it yourself
• You want someone watching and adjusting the account, not a one-time recommendation
• You would rather not make each buy and sell decision
• You meet the program minimum without stretching your emergency savings

Fiduciary, best interest and what your adviser owes you

People often ask whether an adviser is a fiduciary while a broker is held only to suitability. That shorthand no longer describes the choice well. The SEC's investor site says investment advisers must act in your best interest and not put their interest ahead of yours, and Primerica's relationship summary uses the same words for both sides of its business, when it acts as your investment adviser and when it makes a brokerage recommendation. The bigger practical difference is scope: an adviser typically gives ongoing advice and monitors the account, while a brokerage recommendation is made at a point in time.

Best interest does not mean free of conflicts, and every firm's relationship summary lists its own. In an asset-based arrangement, the obvious one is that the firm earns more when the account is larger and stays longer, so there is an incentive to encourage you to add money and stay. The SEC notes that rules require you to receive the wrap fee program brochure before or when you sign the contract. Read it along with the Form CRS, and check the adviser's record on BrokerCheck. The full list of questions I would put to anyone is in what to ask a financial advisor before hiring.

Who should probably wait

Primerica Advisors' Form CRS lists a minimum investment of $25,000 for its advisory accounts, and says advisory services are available only from representatives licensed to offer managed account programs. Minimums differ by firm and program, but the principle is general: a managed account is built for a balance large enough that ongoing management matters. Someone starting from zero is usually better served by an emergency fund and steady monthly contributions to a retirement account first. If that is where you are, start with the order I walk working families through.

A managed account is also not for anyone expecting the fee to buy a guaranteed result. The relationship summary says it plainly: you pay fees and costs whether you make or lose money, and those costs reduce what you earn over time. Investments carry risk, including the possible loss of principal, and nobody can promise a return. What the fee buys is a process, not an outcome.

Taxes, account types and where the money comes from

A managed account describes how the money is run, not how it is taxed. Depending on what the program accepts, it can be a regular taxable account or a retirement account such as an IRA, so the tax question still needs its own answer. If you are deciding between pre-tax and after-tax retirement money, read Traditional IRA or Roth IRA: which fits before you choose how the account is registered.

One common source of a lump sum is an old employer's retirement plan. Moving it has its own rules, and done the wrong way it can trigger withholding or taxes. The steps and the traps are in what an old 401(k) rollover involves.

In a taxable managed account, trades made by the asset manager can create taxable gains in a year when you did not sell anything yourself. Ask how the strategy handles that, and talk to your tax professional about what it could mean for your return.

Questions to settle before you sign the advisory agreement

The SEC bulletin suggests a set of questions to ask about any wrap fee program, and I agree with every one. I would add one more: ask the adviser to show you the same goal in a brokerage account and explain why the managed account is worth the difference for you.

• What will I pay per year in dollars, counting the wrap fee and the funds' own expenses?
• What exactly does the wrap fee cover, and what could I pay on top of it?
• Which strategies and asset managers are available, and why this one for me?
• Will the account be traded actively or follow a buy-and-hold approach?
• How often will we review whether a managed account still makes sense?
• How do I change strategies or close the account, and what does leaving cost?

How I set one up with a family

We begin with the whole picture: income, debts, the emergency fund, existing retirement accounts and what the money is for. If a managed account fits, I explain the available strategies, the fee schedule and what it covers, and I give you the Form CRS and the wrap fee program brochure to read before anything is signed. If it does not fit, I will tell you, and we look at an IRA or a brokerage account instead.

After the account is open, Primerica Advisors makes a quarterly performance report available and reminds you each quarter to contact your advisor if your situation or goals change. I would rather hear from you before the reminder: a new job, a child, a home purchase or a retirement date coming into view can all change which strategy fits. Most of the families I work with live in the Dallas area, and a first conversation carries no obligation. This guide is general information, not advice for your situation, so talk to a financial professional before you decide.

Questions people ask me