Managed Account or Self-Directed Brokerage Account?

Let’s explore the key differences between two types of common investment accounts: managed accounts and self-directed brokerage accounts.

You’ve decided that you want to open an investment account to help achieve your financial goals—great start. What kind of account are you going to open? Two types of investment accounts to consider are managed accounts and self-directed brokerage accounts. There are also other types of accounts, but for simplicity, we’ll focus on just these two common types. Neither is the universally better option for every investor in every situation, so it’s important to understand the differences.

Managed Accounts

With a managed account, you give your investment advisor (or portfolio manager) discretionary authority over the account—you give up control over which securities to buy and sell in the account and instead give full control to the advisor. By contrast, non-discretionary investment advisory services provided by an advisor require you to be the one to take action.

They save you time and offer convenience...

A managed account advisor receives high-level direction from you about your financial goals, risk tolerance, investing timeline, and other factors, and then chooses:

  • Which securities to invest in
  • When to buy and sell assets
  • How dividends are reinvested
  • When to rebalance the portfolio
  • When to tax loss harvest

Because of this, managed accounts are convenient—you don’t have to research investments, follow the market, or worry about any of the other actions listed above (although it always make sense to review your account periodically to protect against fraud, as well as to ensure that the account continues to be appropriate for your needs).

...but not a lot of control.

The tradeoff for convenience is that you give up day-to-day control over the investments in the account. This includes the timing of each trade. If you are the type of investor who follows the market closely and wants to dictate the precise moment at which your assets are bought and sold, a managed account may not be the right option for you.

This level of convenience can also sometimes come at a higher price. The advisor will charge a fee, which is typically charged against a percentage of the assets that the advisor manages. The fee covers account monitoring on an ongoing basis to help ensure that the investments in the portfolio are appropriate to your financial goals and situation. For a buy-and-hold investor who does not make a significant number of trades, a managed account could be more expensive than a self-directed brokerage account, where fees are typically charged based on transactions.

Self-Directed Brokerage Accounts

With a self-directed brokerage account, you control the buying and selling of securities. You also assume responsibility for all other aspects of managing the account. The brokerage’s role is simply to execute the trades that you request. Additionally, this type of account typically does not come with holistic advice or continuous monitoring of your investments.

They can be less expensive...

Because you’re taking on all of the account management responsibilities, a self-directed brokerage account can often be a cheaper way to access investing capabilities than a managed account. Self-directed brokerage accounts usually charge commissions on a transaction-by-transaction basis. If you don’t trade often (or, if you have access to commission-free financial products through your account), this may be a cheaper option.

...but with more control comes more responsibility.

A self-directed brokerage account gives you the benefit of exercising far more control over the timing and pricing of trades. You can place market orders to buy or sell at the current market price—orders which most modern brokerages typically are able to execute very soon after the order is placed. Or, you can even limit orders to buy or sell only at particular price points.

This ability to time the market comes at a potential price beyond just taking up more of your time: our research shows that it is often time in the market, and not market timing, that helps investors build returns.

Managed Accounts at Betterment

Betterment offers only managed accounts, which we believe are appropriate for long-term investors looking to buy and hold securities to achieve their financial goals. For one low fee, we fully manage the account by choosing investments, reinvesting dividends, rebalancing when needed, harvesting losses, and more.

Open a managed account and let us worry about the management details so that you can save time and live better—all for a low fee.