A managed account delegates some investment work, but the label does not tell you what you own, which decisions the manager can make, or the complete price. Those three questions provide a better starting point than a performance chart or a headline advisory fee.
Separate the investments from the service
In a separately managed account, or SMA, the investor directly owns individual securities held in the account. A mutual fund or ETF investor owns shares of a pooled fund, which owns the underlying holdings. An SMA can offer customization, such as excluding certain securities, but the available choices depend on the strategy and agreement. Schwab describes this distinction in its SMA explanation.
A managed portfolio can instead hold funds. Hiring a manager does not transform those fund shares into direct ownership of every underlying company. Look through the account's positions and ask which costs and restrictions belong to the account, and which belong to its investments.
“Robo-adviser” describes a way of delivering advice or portfolio management, often through an online questionnaire and automated rules. It is not a separate legal kind of security. A robo-adviser can manage a portfolio of ETFs, and a human adviser can use software to implement an SMA. Compare ownership and service on separate axes.
What may the manager do without asking?
Discretionary authority generally lets a manager make investment decisions within the agreed mandate without seeking approval for each trade. The contract defines the scope. Read the investment restrictions, withdrawal process, and who holds the assets. The SEC's introduction to investment advisers explains why the service agreement matters.
Ask a concrete question: if you suddenly need cash for a major expense, who changes the plan, who sells holdings, and how will the tax consequences and transfer timing be explained? An answer about “ongoing support” is less useful than a clear description of the actual process.
Turn each fee into dollars
A wrap fee bundles specified services, often advice, brokerage, and administration. It does not necessarily cover fund expenses or every trading charge. A low-trading account may also get little value from a bundled trading component. The SEC's wrap-fee bulletin explains exclusions and questions to ask.
Invented comparison—not market pricing: assume two services hold the same fund portfolio and provide identical services. Offer A charges 0.60% of assets annually; Offer B charges $35 monthly, or $420 annually. Both also hold funds with assumed annual expenses of 0.12%. Balances stay constant solely to make the arithmetic transparent.
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| Constant balance | A: advisory fee | B: subscription | Fund expenses, either offer | A total / B total |
|---|---|---|---|---|
| $20,000 | $120 | $420 | $24 | $144 / $444 |
| $70,000 | $420 | $420 | $84 | $504 / $504 |
| $100,000 | $600 | $420 | $120 | $720 / $540 |
The advisory charges tie at $420 ÷ 0.006 = $70,000. At $20,000, the subscription alone consumes 2.10% of the assumed balance; at $100,000, it is 0.42%. A flat fee is not automatically cheaper. The SEC discusses this balance sensitivity in its subscription-fee bulletin.
Download the fictional fee comparison (CSV). The figures exclude trading costs, taxes, transfer fees, market changes, and the effect of deducting fees from the balance. Fund expenses typically reduce fund returns rather than appearing as a separate advisory invoice. Actual billing can use different valuation dates, tiers, or minimums. This example compares arithmetic, not investment quality.
Read the documents in a useful order
- Relationship summary: where applicable, read Form CRS for a short account of services, costs, conflicts, and disciplinary information.
- Adviser brochure: use Form ADV Part 2 to examine fees, strategies, risks, conflicts, brokerage practices, and relevant business relationships.
- Your agreement: match those descriptions to the authority, restrictions, billing, and termination provisions you would actually accept.
- Investment documents: inspect the funds or securities separately; the advisory contract does not replace their disclosures.
The SEC's Form ADV brochure guide explains its sections. Search the Investment Adviser Public Disclosure database for the firm's filings, and match the legal name rather than relying only on a brand name.
Ask for a dollar estimate at your expected balance, including costs paid indirectly. Ask whether the firm earns money from particular funds, cash arrangements, or affiliated providers. When reviewing past results, distinguish the strategy's record from your likely portfolio, net from gross returns, and a selected period from a full market cycle. Delegation does not remove investment losses.
Customization and automation still need oversight
Tax-loss harvesting sells an investment at a loss while managing replacement exposure. A loss is not automatically usable: U.S. wash-sale rules can disallow a deduction when substantially identical securities are acquired within 30 days before or after the sale, including certain purchases in an IRA or Roth IRA. Transactions in other accounts can matter. Review the IRS discussion of wash sales in Publication 550 with the records needed for your own return.
A manager seeing only one account cannot reliably infer everything happening elsewhere. Tax benefits also depend on gains, future sales, tax rates, and costs; deferring a tax bill is different from eliminating it. Ask which accounts the service monitors and what information you must supply.
An automated adviser can act only on the information it receives. Update material changes in goals, finances, or risk tolerance, and find out what human support is available. The SEC's robo-adviser bulletin discusses questionnaire and service limitations. Automated portfolio management is not necessarily generative AI.
If you use an AI assistant to summarize a public fee brochure, ask it to quote the relevant section locations and verify each figure against the document. Do not treat its summary as the contract or upload private account records unnecessarily. For the holdings themselves, the debentures guide shows how to read debt terms; the budgeting guide helps frame the cash needs an investment plan must accommodate.