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Investment Advice and Planning: Strategy - Module 3.3 Managed Portfolios – Defined & Outlined

Edward Ketterer • Dec 13, 2021
Income

With the creation of a Managed Portfolio a foundation is developed from which a Strategy takes form.


Whilst the preceding are important there are a number of steps to take and it starts with a plan that is covered under Module 3.1 Wealth Creation followed by establishing what are day-to-day expenses and the income needed to meet those expenses with Module 2 Three Foundations a place to start. As retirement comes closer there will be a better sense of what will be needed to retire appropriately funded. An important consideration is ensuring that Managed Portfolio or Account is a structure from which the purchase of assets for the purpose of creating wealth through asset growth or to create both growth and income in retirement are achieved through an investment strategy under which the investor may have a direct or indirect beneficial interest in the underlying asset(s).


When it comes to how a Portfolio is managed there are number of different methods and structures as well as a combination of these methods and structures that can be used – individually they are as follows:
Active: Active Portfolio Management involves an investment manager who is regularly making judgements to buy, sell, or hold assets for the purpose of outperforming the assets given market. This is normally reflected by selecting a benchmark and in most cases, this is a recognized market index to which the asset(s) is / are attributed or compared to when considering performance. An active investment manager has a host of tools that will be used to make decisions to buy, sell or hold an asset. The tools used will cover research, analysis, and forecasts for a given asset or even a set of assets, based on their relationship to each other, topped off with the experience and expertise of the manager.

Passive: Passive Portfolio Management is simply a buy and hold strategy with the aim to minimize costs over the long term. The basis upon which this style of portfolio management is utilized is in keeping with the philosophy that the market continuously provides the best possible return as compared to active portfolio management. This is in keeping with the “Time in, Not Timing” as outlined in the article “Diversification and Investment Time Frame” that provides the best potential returns over the long term.

Discretionary: Discretionary Portfolio Management empowers an investment manager to make all decisions regarding the buying, holding, or selling of a portfolio’s assets. These decisions are based on the strategy as defined by the needs and wants of the investor.

Non-Discretionary: Non-Discretionary Portfolio Management maintains the investor as the final decision maker regarding the buying, holding, or selling of assets held in a portfolio. In most cases the investor will employ the advice of an investment manager as well as utilize the investment manager services to transact on behalf of the portfolio.

Portfolio Management Services (PMS): PMS basically utilizes one or a combination of the following i.e., Active Portfolio Management, Passive Portfolio Management, Discretionary Portfolio Management, Non-Discretionary Portfolio Management. The selection process as to what service or combination of services to incorporate would be based on the investors profile.

Individually Managed Accounts (IMAs): IMA Is a portfolio comprised of various investment assets constructed based on a comprehensive analysis of the investor’s needs. In some cases, there can be certain tax benefits depending on the tax jurisdiction of the individual and any assets transferred into the IMA. It is specifically designed and selects specific investments that reflect the investors specific requirements.

Separately Managed Account (SMA): SMA is a portfolio of investments that in some cases utilize model securities portfolios (MSP) where each MSP will be designed to achieve an outcome through a specific investment strategy set out by the investment manager of that MSP. In many cases the investor will need to open an account with each model securities portfolio invested in.

Unified Managed Accounts (UMAs): UMAs provide an investor with the ability to invest in a variety of investment types with multiple investment strategies and may even include SMAs as part of the account construction.

WRAP Account: Is an account that consolidates all fees and charges incurred for the i.e. management, administration, brokerage, and investment advice. The account reporting provides detailed summaries of investments and their performance as needed or required by an investor. The WRAP account can hold a variety of investments and utilize various investment strategies.

It should be noted that the range of Account types and Portfolio Management styles and their use is based in part on the amount of monies invested and the diversity of investment selected, including the variety of investment strategies required by an investor.

It should be noted that this article and all articles published by Creative Coach Online are for information purposes only and should not be taken as advice. It is essential to discuss the appropriateness of any Strategy with a licensed / registered professional. For more details, please visit https://www.creativecoachonline.com/disclaimer

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