Investing Essentials Joint brokerage and managed investment accounts: What are they and should you have one?

If you and a family member or business partner are looking to manage investments together, opening a joint brokerage or managed investment account could be a smart move. Joint investment accounts offer flexibility and convenience to help you meet financial goals, manage your portfolio and simplify estate planning.

Before you decide if a joint account is right for you, though, it’s important to understand how such an account works, what types are available and how to set one up.

Given the potential legal issues associated with joint accounts including ownership rights and taxes, you should consider speaking with an attorney about what’s right for your situation.

What is a joint investment account?

A joint brokerage or managed investment account is owned by more than one individual. These accounts tend to be held by family members – such as spouses, siblings or parents and their adult children – or by business partners. When ownership is shared, all account holders are empowered to make transactions and otherwise control the account.

Types of joint investment accounts

There are different types of joint investment accounts, and the rules governing shared ownership vary depending on the state where the account is established. Before opening a joint investment account, you’ll need to confirm the details relevant to your specific circumstances.

Those who are thinking about opening a joint account should consider several factors, including the relationship between the co-owners and recognition of percentage ownership among them. You’ll also need to understand inheritance rules, along with asset titling – how you own your shared assets – before you decide to open a joint account.

The three most common types of joint account types are as follows:

• Joint tenants with right of survivorship: These accounts may be owned by two or more people, each of whom owns 100% of the assets. If one account holder dies, the remaining owner(s) inherit the whole account.
• Tenants by the entirety: These accounts follow similar rules to joint tenants with right of survivorship accounts but are available only to married couples. It’s important to note that not every state recognizes this ownership interest.
• Tenants in common: These accounts allow for the owners to specify ownership, whether 50-50 or something else. For example, one individual may own a 20% share of the account, while the co-owner owns the remaining 80%. When one owner dies, the remaining account owner(s) won’t automatically assume ownership of the co-owner's portion. Rather, the co-owner's portion is included in their estate and may be bequeathed to any named beneficiary.¹

Why should you consider a joint investment account?

People may choose to set up a joint investment account for a variety of reasons. Some of the most common include the following:

The ability to invest as a pair or a group in a simplified and potentially more cost-effective way

For some, the goal is to simplify their finances by having fewer accounts to manage. Others may choose a joint account to take advantage of lower costs, as some firms reduce fees for larger accounts. There’s also the possibility of incurring less fees by holding less accounts.

Can be useful to streamline estate planning

An individual might choose to open a joint account with rights of survivorship with their spouse, for example, or elderly parents might open an account with their adult children. In addition to all owners having access and being able to transact in the account, surviving owners gain sole ownership, meaning the assets are passed outside of the deceased owner’s estate. This can simplify estate planning.

What are some drawbacks to having a joint investment account?

Now that you understand why someone might consider opening a joint investment account, it’s important to consider the possible downsides of this kind of investment vehicle.

May lead to misunderstandings regarding the use of funds by co-owners

An account co-owner may not always respect the intended use of the account. It also opens the door to the misuse of funds by a co-owner of the account. If potential joint owners are deemed too risky, consider careful estate planning instead to reap some of the same benefits.

May create a creditor risk to one of the account’s co-owners

Opening a joint account exposes all co-owners to collective credit risk. If an account owner is subject to claims by creditors, all or some portion of the account may be seized. Essentially, the financial decisions of one account holder – including those you might not agree with – affect all the account holders. This is especially true for joint tenancy with rights of survivorship accounts since creditors can go after 100% of the assets in these accounts.

There are risks in cases of divorce, business partnership dissolutions or other breaks between account holders

In the case of divorce, a joint account holder’s ex-spouse may claim a portion of the account. Even if the divorce is amicable, you should still know what you’re entitled to and be on the same page as your ex-spouse. If you’re not, you may need to contact the brokerage where you hold the account to discuss next steps.²

Beyond the risks that come with divorce, business partnership dissolutions and other breaks between account holders may pose risks, including possible tax implications. You may want to discuss options with a tax professional or an attorney.

How to open a joint brokerage or managed investment account

Let’s say you’ve identified your goals, weighed the risks and determined your prospective co-owners are trustworthy and financially responsible. If you decide to move forward with a joint account, the process to open one is fairly straightforward. Every financial institution does things slightly differently, but here are the major steps you’ll need to take.

1. Choose a financial institution: Selecting a financial institution will be your first step. Consider possible fees, level of customer service, variety of investment options and your own familiarity with the firm, among other factors. You’ll also want to confirm that all parties who plan to share the account agree on the firm before committing.
2. Determine the account type: Decide on the type of joint account you want – a joint tenants with right of survivorship, a tenants by the entirety or a tenants in common account. Each type has different implications for ownership and inheritance.
3. Collect required information: Make sure you have all the required information, including your Social Security number, government identification (like a passport or driver’s license) and personal contact info. You’ll likely need to provide financial details like annual income and bank and investment account statements.³ Joint account holders will also likely need to provide this information.
4. Submit necessary paperwork: All account holders will need to fill out paperwork and sign documents. Confirm with the financial institution you’re choosing if signatures can be collected online or in person. If one of the account holders is of diminished capacity, you may need to ensure someone has been assigned power of attorney to act on their behalf.
5. Fund the account: Once the application is approved, you’ll need to transfer funds from an existing bank or brokerage account to fund the new joint account.

The bottom line

Joint accounts may work for some individuals – especially those looking to streamline their investment accounts or those who want to streamline the estate planning process for their family. Joint accounts do have their risks, however; if you decide to open one, make sure you trust the other account holders and prioritize regular and open communication about your shared investment strategy.

For important disclosures, please refer to the disclosures section for detailed information.