An agency account allows an investment manager to make portfolio decisions on your behalf, based on your broadly stated investment goals.
As the principal of your account, you still have control, but you no longer need to deal with the day to day of investing. You might want to consider this approach if you find the efficiency and expertise of it appealing.
Types of agency accounts
There are four types of agency accounts:
- In an individual account, assets are held in the name of an individual. This option best suits people who don’t share finances with a spouse or family member.
- In a joint-owners account, assets are held in the name of one or more owners. This type of account is often used by married couples or by parents and their minor children.
- In a corporate entities account, assets are held in the name of an entity. This approach is often used by a limited partnership or a limited-liability company.
- With trusts, the principal or principals serve as the trustee. Trusts are often used on behalf of minors or incapacitated individuals. However, spouses can form a revocable trust, naming each other as trustees and giving each full access to the account.
How an agency account works
Managing investment assets can be time consuming and complex. An agent can help simplify the process. Potential benefits include:
- Easy management of cash through a variety of money-market cash sweep vehicles.
- One convenient statement and fee.*
An agent may be given one of two forms of authority in making investment decisions:
- A management agency, in which you authorize your agent to have sole discretion in making investment decisions based on a predetermined investment plan. You’ll be notified after decisions are made, but this setup allows the agent to act quickly in responding to market shifts. If you decide to alter your investment plan, you can work with your agent to change strategies at any time.
- An advisory agency, in which you and the agent have shared discretion. Under this arrangement, the agent consults with you before executing each trade, allowing you to remain involved in the decision-making process. In practice, this results in an account that feels very similar to a traditional brokerage account. The trade-off is the time it takes to obtain your consent before actually executing trades.