As you set financial goals and plot an investment strategy to meet them, you may find that an experienced, trustworthy, and savvy guide can be a tremendous help. Amid the sea of financial professionals are money managers, who can take a hands-on approach with an investment portfolio.
Before hiring a money manager, however, it’s important to understand what they do, how they get paid, and how they may differ from other financial professionals.
What Is a Money Manager?
Money managers are also known as portfolio, asset, or investment managers. They are people or companies that provide individualized advice about building a portfolio. They buy and sell securities on behalf of their clients, provide updates, and make suggestions for changes as market conditions shift. Clients include individuals and institutional investors like universities and nonprofit organizations.
Money managers have a fiduciary duty to their clients: They are obligated by law to put their clients’ best interests first. This may seem like a no-brainer, but it is not necessarily true of all financial professionals.
Investment advice must advance a client’s goals, not because it is more profitable for the advisor. For example, a money manager could not suggest a particular investment to a client just because the manager would receive higher compensation.
Fiduciary rules mean that advice must be as accurate as possible based on the information that is available. A fiduciary (from the Latin fidere, “to trust”) is to take into account cost and efficiency when making investments on behalf of clients, and alert clients to any potential conflicts of interest.
What Makes Money Managers Different?
As you search for someone who can help you invest, you may encounter any number of titles, from asset manager to financial advisor, wealth manager to registered investment advisor. To make matters more confusing, “financial planner” covers a broad range of possible professions. They could be investment advisors, brokers, insurance agents, or accountants.
A potential client can check the registration status and background of a professional or firm on Investor.gov, the SEC’s Investment Adviser Public Disclosure website, FINRA’s BrokerCheck, and/or individual state securities regulators.
Here’s a look at some of the most common financial professionals you may encounter and what may make money managers different.
Registered Investment Advisors
Registered investment advisors, as the name suggests, provide investment advice to clients. They must register with the Securities and Exchange Commission or a state authority, and they have a fiduciary duty to hold a client’s interests above their own. They can manage client portfolios, making trades and offering advice on investment strategies.
Registering as an investment advisor means disclosing investment styles and strategies, total assets under management, and fee structure. RIAs must also disclose past disciplinary action and conflicts of interest.
A broker-dealer is an individual or company licensed to buy and sell securities. Brokers act as middlemen, buying and selling stocks and other securities for other people. When they are buying for their own accounts they are functioning as dealers.
Stockbrokers usually work at brokerage firms and earn their money by charging a fee for transactions they make.
Brokers register with the Financial Industry Regulatory Authority, an industry group. FINRA has enforced a “suitability” rule for them, meaning they needed to have reasonable grounds to believe that a recommended transaction or investment strategy involving a security or securities was suitable for the customer.
Now the SEC is enforcing a new rule, Regulation Best Interest, that establishes a “best interest” standard for broker-dealers. It requires them to stop referring to themselves as advisors if they aren’t working under a fiduciary standard,
Certified Financial Planners
Financial professionals who carry the CFP® credential have gone through the rigorous training and experience requirements required by the CFP® board. They must also pass a six-hour exam.
They have a fiduciary duty to their clients but can offer services that don’t require regulation. They can help with general financial planning, such as putting together a retirement plan or a debt reduction plan. They may make recommendations about asset allocation, investment accounts, and tax planning.
Money managers may offer a combination of the services mentioned above. They chiefly manage people’s investment portfolios, but they may also offer other forms of financial planning. They likely give investment advice, which means they must be registered as an RIA.
How Do Money Managers Get Paid?
Money managers typically charge a management fee equal to a percentage of a client’s portfolio each year. On average, advisors charge 1.17% of clients’ assets under management. That means an advisor would charge $1,170 each year to manage a portfolio worth $100,000.
A manager’s fees may be assessed quarterly, which could mean the amount you pay at the end of the year may be a bit more or less than if you were to pay annually.
An asset manager’s fees may also decrease depending on the size of an account. For example, fees on very large accounts may be smaller so that single clients don’t end up paying exorbitant amounts.
Asset managers and other financial advisors may also charge an hourly rate, especially if they are doing any consulting or working on a special project. They may also charge fixed fees for certain services. Some advisors and managers may earn a commission when purchases or trades are made. And there may be performance-based fees if a portfolio performs beyond an established benchmark.
Fee-only advisors earn their money only from the fees they charge clients. They do not earn commissions. This fact makes them distinct from fee-based advisors, who may earn money from fees and commissions.
Should You Hire a Money Manager?
Managing your money can take a lot of time and effort, especially if you have multiple investment accounts or you’re juggling a lot of assets.
Money managers typically have many advantages when it comes to choosing investments. Not only are they trained to make investment decisions but they typically have access to a lot of information—including analytical data, research reports, financial statements, and sophisticated modeling software—that the average person doesn’t have. So they may be better equipped to make informed decisions.
For investors who have struggled to understand how to best put their money to work in order to meet financial goals, a money manager may be able to help. A large portfolio isn’t necessary. Even those who are just starting out may be able to benefit from working with one.
Choosing a Money Manager
Before hiring a money manager, figure out what type of financial help you need. If you’re just starting out, you may want to hire someone who can help you put together a long-term financial plan, for example.
An online check with one or more of the aforementioned official websites will show how long an advisor has been registered, where they have worked, and what licenses they hold.
After narrowing the search, it’s a good idea to speak to a few candidates to get an idea of how they communicate, how they typically work with clients, and how they are compensated. If an advisor is cagey about answering the latter question, that’s a red flag.
With so many titles and options, from financial planner to broker and money manager, it might be hard to choose a guide to handle your finances. A money manager is a strategist who specializes in managing investment portfolios and has a fiduciary duty to clients.
Whether you want to know more about saving for the future or borrowing the right way, SoFi’s full-time financial planners can offer advice based on your unique needs—at no additional cost.
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