Managed accounts are investment portfolios overseen by professional managers who trade on behalf of their clients. The terms governing managed accounts vary depending on the service provider, but they generally include provisions for fees, trading authority, risk management, and reporting. Understanding these terms is essential for both investors and managers to establish clear expectations and minimise disputes.

Key Terms of Managed Accounts

1. Account Setup and Agreement

• Account Registration: Investors must open a trading account with a specified broker.
• Managed Account Agreement: This legal document outlines the roles, responsibilities, and rights of both the investor and the manager.
• Limited Power of Attorney (LPOA): Grants the manager trading authority while keeping fund control (deposits/withdrawals) with the investor.

2. Fee Structure

Managed accounts typically involve two types of fees:

• Management Fees: A fixed percentage of the assets under management (AUM), often 1-3% annually.
• Performance Fees: A percentage of profits generated, usually 20-30%. This is often subject to a high-water mark to ensure fairness.
  Additional fees may include brokerage commissions, spreads, or platform costs.

3. Minimum Investment Requirements

Most managed accounts require a minimum deposit to participate. These can range from $1,000 for entry-level accounts to $100,000 or more for premium services.

4. Trading Authority

• The manager is authorised to execute trades but cannot withdraw funds.
• The scope of trading authority is defined in the LPOA, including:
  • Permitted asset classes (e.g., forex, commodities)
  • Leverage limits
  • Risk exposure guidelines

5. Risk Management Terms

Risk management provisions are critical in managed accounts and often include:

• Maximum Drawdown Limits: A cap on the percentage of account equity that can be lost.
• Position Sizing: Limits on trade sizes relative to account balance.
• Stop-Loss Orders: Pre-set exit points to minimise losses.
• Risk Appetite: The investor’s risk tolerance, classified as conservative, balanced, or aggressive.

6. Reporting and Transparency

Managed accounts are required to provide regular performance updates, often on a monthly or quarterly basis. Reports typically include:

• Profit/loss statements
• Breakdown of trades executed
• Fee deductions
• Current account balance and equity

7. Withdrawal and Deposit Terms

• Withdrawals: Investors can usually withdraw funds at any time, but some accounts may impose notice periods or fees.
• Deposits: Additional contributions can often be made, though some managers set limits on frequent deposits.

8. Termination and Revocation

• Termination Clause: Specifies how the agreement can be ended by either party.
• Revoking Authority: Investors can revoke the LPOA at any time, effectively ending the manager’s control over the account.
• Settlement of Fees: Outstanding fees must be settled upon termination.

9. Performance Benchmarking

Managed accounts often include benchmarks to evaluate performance. For example, returns may be compared against a specific index or predefined goals.

10. Legal and Regulatory Compliance

• Regulation: The manager must be licensed and regulated by a relevant authority (e.g., FCA, ASIC, or CFTC).
• Risk Disclosure: Legal documents must disclose the inherent risks of trading in markets like forex.
• Fund Segregation: Investor funds should be held separately from the manager’s operational accounts.

11. Customisation Options

Some managed accounts offer flexibility to tailor the investment approach, such as:

• Selection of trading strategies (e.g., high-frequency, long-term).
• Choice of currency pairs or asset classes.
• Adjustments to leverage and risk levels.

12. Lock-In Periods

Certain managed accounts may impose lock-in periods, during which funds cannot be withdrawn. These terms are typically found in pooled or structured accounts.

FAQs

What is the typical fee structure for managed accounts?

Managed accounts charge management fees (1-3% of AUM) and performance fees (20-30% of profits), often subject to a high-water mark.

What is the minimum investment required for managed accounts?

Minimum deposits range from $1,000 for entry-level accounts to over $100,000 for premium or institutional accounts.

What is a high-water mark in managed accounts?

A high-water mark ensures performance fees are only charged on new profits above the account’s previous highest value.

Can I withdraw funds from a managed account?

Yes, most managed accounts allow withdrawals, but some may require advance notice or impose fees.

How often are performance reports provided?

Reports are usually provided monthly or quarterly, detailing profits, trades, and fees.

What are the risks associated with managed accounts?

Risks include market volatility, poor management decisions, and leverage. Ensure the manager employs robust risk management.

Can I customise a managed account?

Yes, many managed accounts allow customisation of strategies, risk levels, and asset selection.

How is risk managed in a managed account?

Risk is managed through position sizing, stop-loss orders, maximum drawdown limits, and adherence to the investor’s risk tolerance.

Are managed accounts regulated?

Yes, reputable managers are regulated by financial authorities, ensuring compliance with laws and investor protection.

What happens if I want to terminate a managed account?

The agreement can be terminated as per the terms, with the LPOA revoked and outstanding fees settled.

Conclusion

Typical terms for managed accounts include clear provisions for fees, trading authority, risk management, and reporting. These terms aim to protect both the investor and the manager while fostering a transparent and profitable relationship. Before entering a managed account agreement, ensure you understand the terms, verify the manager’s credentials, and align the account’s approach with your financial goals.