What Is an IMA Account & How Does It Work?

An Investment Management Account (IMA) provides professional oversight for an investor’s financial assets. This type of account involves a formal agreement where a financial institution, such as a bank or investment firm, takes on the responsibility of managing a client’s investments. The primary purpose of an IMA is to delegate the day-to-day investment decisions and portfolio management to experienced professionals. This arrangement can be particularly suitable for individuals or entities seeking expert management without needing to engage directly in every investment choice.

Defining an IMA Account

An Investment Management Account (IMA) is a structured arrangement where an investor grants authority to a financial institution to manage their investment portfolio. This means the institution makes investment decisions on behalf of the client, adhering to a predetermined strategy. Unlike a standard brokerage account where the investor typically makes their own trading decisions, an IMA involves a professional actively managing the assets.

The relationship established through an IMA is built on a fiduciary duty. This means the managing institution is legally obligated to act in the client’s best financial interest, making prudent investment choices and avoiding conflicts of interest. This structure enables investors to have their assets professionally managed while retaining beneficial ownership of the individual stocks or bonds within their portfolio.

Key Characteristics and Features

IMAs offer distinct operational features, including the level of decision-making authority granted to the manager. Discretionary management provides the financial institution full power to make investment decisions, including buying and selling securities, without requiring client approval for each transaction. This approach is often preferred by investors who seek a hands-off role. In contrast, non-discretionary management involves the financial manager providing recommendations, but the client retains the final say on all investment decisions.

Investment strategies within an IMA are highly customized to align with individual client goals, risk tolerance, and time horizons. The managing institution develops a personalized portfolio that reflects these specific objectives, adapting the investment mix as circumstances change. Clients typically receive regular reports, often quarterly, detailing their portfolio’s performance, holdings, and account activity. Some providers may also offer monthly valuations, ensuring transparency and keeping clients informed about their investments.

The fee structure for IMAs commonly involves a percentage of the assets under management (AUM). This annual fee typically ranges from 0.5% to 2% of the total assets, with the percentage often decreasing as the amount of managed assets increases. For example, an account with $1 million in assets might incur an annual fee of approximately 1%.

Client Profiles for IMA Accounts

Investment Management Accounts are typically utilized by individuals and entities with specific financial circumstances and objectives that benefit from professional oversight. High-net-worth individuals often find IMAs suitable due to their substantial assets and the desire to delegate complex investment decisions. These clients may have limited time or specialized expertise to manage their portfolios effectively. Professional management allows them to focus on other pursuits while their wealth is grown and preserved.

Families seeking to manage and transfer wealth across generations also frequently use IMAs. Trusts, endowments, and foundations are additional common users of IMAs, as these entities require diligent professional oversight to meet their specific mandates and long-term financial stability goals.

Clients with specialized investment needs or those seeking access to unique asset classes often benefit from the expertise offered through an IMA. For instance, individuals interested in specific sectors or those with particular ethical investment preferences can have their portfolios tailored accordingly. The customized nature of IMAs allows managers to align investment strategies with a client’s nuanced requirements, providing access to professional research and diverse investment opportunities.

Considerations for Establishing an IMA Account

Before establishing an Investment Management Account, defining clear investment objectives, risk tolerance, and time horizon is a foundational step. Prospective clients should articulate their financial goals, such as retirement planning or wealth accumulation, and understand their comfort level with market fluctuations. This personal financial profile guides the investment manager in constructing a suitable portfolio strategy.

Evaluating potential providers involves assessing their experience, reputation, and transparency. It is advisable to review the firm’s regulatory records and inquire about their investment philosophy and performance history. Understanding the total fee structure, including management fees and any other potential expenses, is also important to ensure cost transparency. Fees are typically based on a percentage of assets under management, and it is beneficial to clarify how these are calculated and applied.

A thorough review of the IMA agreement is a necessary part of the process. This document outlines the terms of service, the scope of the manager’s authority, reporting schedules, and any clauses related to account termination. Establishing clear communication expectations with the investment manager is equally important, including how frequently updates will be provided and the preferred methods of contact. This ensures a consistent flow of information and alignment between the client and the managing institution.