Understanding Managed Investment Solutions: Your Money, Managed

Managed investment solutions, also known as managed accounts or managed solutions, are a diverse mix of equity, fixed income, cash, and other funds that make it easier to invest. They are investment accounts owned by an investor but managed by a professional money manager. The manager actively makes investment decisions, considering the client's needs, goals, risk tolerance, and asset size. Managed investment solutions are personalized investment portfolios tailored to the specific needs and objectives of the account holder. They can be used in registered investments such as registered retirement savings plans and tax-free savings accounts.

Managed accounts

The dedicated manager actively makes investment decisions pertinent to the individual, considering the client's needs and goals, risk tolerance, and asset size. Managed accounts are most often seen among high-net-worth investors, as they often require a high minimum dollar amount of investment. Money managers can demand six-figure minimum investments to manage accounts and are compensated by a fee, calculated as a set percentage of assets under management (AUM).

A managed account may contain financial assets, cash, or titles to property. The money or investment manager has the authority to buy and sell assets without the client's prior approval, as long as they act according to the client's objectives. Because a managed account involves fiduciary duty, the manager must act in the best interest of the client or potentially face civil or criminal penalties. The investment manager will typically supply the client with regular reports on the account's performance and holdings.

Robo-advisors are a new innovation in managed accounts, offering algorithmically-managed accounts at a lower cost for everyday investors with low starting balances. These platforms are typically cheaper, charging somewhere in the region of 0.25% of AUM, and may require as little as $5 to get started.

Fund of funds (FoF)

A fund of funds (FOF) is an investment vehicle that pools capital from investors and allocates it to a portfolio of shares in other funds, rather than investing directly in individual securities or private assets. This approach offers investors broader diversification and access to the expertise of skilled fund managers. FOFs have become increasingly popular in recent years, particularly among institutional investors such as pension funds and endowments, due to their ability to spread risk and maximise returns.

The core idea behind FOFs is to combine various investment strategies into a single portfolio, allowing investors to achieve higher returns with reduced risk compared to investing in individual funds. FOFs provide access to a diversified portfolio of funds through a single investment. By pooling capital and spreading it across various underlying funds, FOFs offer professional management, diversification, and access to strategies or managers that may otherwise be difficult for individual investors to obtain.

FOFs offer several benefits, including access to premium investment opportunities, exceptional diversification, professional management, and a simplified investment process. They provide investors with exposure to a broad range of asset classes and investment strategies. FOFs also grant access to exclusive investment opportunities that are typically reserved for institutional players. The diversification offered by FOFs helps spread risk across multiple asset classes and investment strategies, potentially resulting in more stability and higher returns over time.

However, there are also drawbacks to investing in FOFs. One of the main concerns is the higher expense ratios due to the layered fees structure. Investors pay fees for both the FOF management and the underlying funds, which can significantly impact overall returns. Additionally, the extensive diversification offered by FOFs may lead to diluted returns, as the performance of high-performing assets may be offset by lower-performing ones. FOFs are also more complex to understand and evaluate due to their multilayered nature, and they may suffer from an opaque nature of investment, making it challenging for investors to fully comprehend where their money is invested.

In conclusion, FOFs provide a valuable investment option for those seeking broad diversification, access to exclusive investment opportunities, and professional management. However, investors should carefully consider the higher fees, potential for diluted returns, and the complex nature of these investments before deciding to invest in FOFs.

Target-risk funds

A managed investment solution is a diverse mix of equity, fixed income, cash, and other funds that make investing more accessible. These funds are supervised by professional money managers, who are dedicated to building and managing a portfolio that aligns with the investor's goals and risk tolerance.

The fund manager of a target-risk fund is responsible for ensuring the level of risk is aligned with the fund's target-risk exposure. They oversee the securities owned within the fund, which may include stocks, bonds, and other investments. The manager's role is to maintain the desired risk profile and make tactical decisions when necessary.

Unlike target-date funds, which reduce risk over time, target-risk funds typically maintain their risk level. This means that an investor can adjust their level of risk exposure as needed throughout their life. For example, an investor may choose a more aggressive fund when they are young and move towards more conservative funds as they approach retirement.

Robo-advisors

• Wealthfront: Best Overall robo-advisor due to its vast customization options, fee-free stock investing, dynamic tax-loss harvesting, and low-interest borrowing. It offers a range of account types, including 529 plans for college savings.
• Betterment: Best for Beginners, offering multiple portfolio choices, robust cash management features, and low-cost financial advisor planning. It also provides access to crypto portfolios.
• SoFi Automated Investing: Best for Low Costs, with fee-free investment management and access to financial advisors. It has a low minimum investment requirement of $1.
• M1 Finance: Best for Sophisticated Investors who want access to customized portfolios and the ability to choose their own stocks and ETFs. It also offers high-yield cash accounts and low-interest margin loans.
• Acorns: Best for Those Who Struggle to Save, with a "round-up" feature that automatically invests spare change. It offers low-fee, diversified investment portfolios.
• Ellevest: Best for Women Investors, providing tailored investment portfolios that address women's specific career and life situations, such as lower earnings and longer lifespans. It offers discounted access to financial advisors.
• E-Trade Core Portfolios: Best for Mobile, with a user-friendly mobile app that enables account opening, transfers, and bill payments. It provides access to the broad Morgan Stanley lineup of investment and financial management services.
• Merrill Guided Investing: Best for Education, offering expansive financial education resources and tools for beginners to advanced investors. It provides a mix of technology-based investment management and oversight by Merrill investment professionals.

Investment management firms

The role of an investment management firm is to understand their clients' financial goals and risk tolerance, research and analyse prospective investments, and create robust investment strategies. They help clients make sense of complicated tax laws and implement tax-reduction strategies. Investment management firms also formulate investment strategies, which usually involve diversifying their clients' wealth across multiple investments to build a robust portfolio.

The firms' professionals, such as financial advisors, investment analysts, and portfolio managers, work together to achieve these goals. Financial advisors assist clients with financial planning, such as building savings strategies for retirement, while investment analysts monitor the financial market and diversify clients' portfolios. Portfolio managers, on the other hand, handle the day-to-day management of these portfolios.

The industry faces challenges due to the direct link between revenues and market behaviour, resulting in profit fluctuations. Additionally, the growth of robo-advisors and exchange-traded funds (ETFs) has led to increased competition and lower-cost alternatives for clients.

Frequently asked questions