When developing your investment strategy, you may find yourself in need of some help. Yet between financial planners, financial advisors and a money manager, it can be tough to pick the right resource for you. Each specialization varies ever so slightly, but tapping the right expert could make a big difference to your bottom line. It’s important to understand what a money manager is, how this expert differs from other financial professionals and how to determine whether you need one. If you’re looking for someone to create a full financial plan and help you determine the right investments, a financial advisor might be a better fit.
What Is a Money Manager?
Also known as portfolio managers or investment managers, money managers are people or organizations that provide personalized advice and handle portfolios. In addition to buying and selling securities to help a client reach his or her financial goals, the professional may settle transactions, measure performance and report to regulators on a client’s behalf. Speaking of clients, money managers can manage portfolios for organizations as well as individuals.
How a Money Manager Is Paid
Unlike investment brokers, money managers earn a fee rather than commissions on transactions. In most cases, clients pay their manager a percentage of their managed assets. As such, both the money manager and the client want the portfolio to flourish. In some cases, the money manager also has a fiduciary duty to act in their client’s best interest. The money manager typically charges a management fee that ranges from 0.5% to 2% or more per year depending on the amount of managed assets.
For an example of how this works, a money manager who charges a 2% fee on $100,000 of managed assets would earn $2,000 per year. Money managers might have minimum asset requirements that are much higher than this, and they may have a minimum fee amount that is different than their typical fee for smaller asset totals.
Money Managers vs. Financial Advisors and Financial Planners
A financial advisor can be a very broad term and mean a lot of different things. At its most basic, a financial advisor helps clients manage their money. Terms like private wealth managers, financial counselors, financial planners and money managers can all fall under the financial advisor umbrella. They may work at brokerage firms, banks or independently as their own business. There are, however, different requirements and certifications for each kind of advisor.
A certified financial planner, for instance, can help you develop a budget, manage a windfall, plan for retirement, prepare for tax season or some combination of the former. Money managers, on the other hand, tend to specialize in investing. They can select stocks, bonds and other financial assets for your portfolio based on your objectives and parameters. Like planners, financial advisors are also usually more generalist. They might buy and sell funds on your behalf, but they would rarely make trading decisions without your direct instruction.
Why Should You Use a Money Manager?
Effectively managing an investment portfolio requires thorough research, which can be very time-consuming. Plus, the market is only open from 9 a.m. to 4:30 p.m. Monday through Friday. Even if you’re an excellent and well-informed investor, you might be too busy to actively invest on your own. The last thing you want is to feel that you are missing out on investment opportunities. That’s where a money manager comes in.
You may also consider a money manager if managing your portfolio overwhelms you or you don’t enjoy investing. A money manager can maximize the value of your portfolio without the stress or emotional rollercoaster it would likely cause you. If you have struggled with investing in the past, it might be time for you to stop making your own investment decisions and let an expert take the reins.
Most money managers have earned the certification of a Chartered Financial Analyst (CFA) or other professional designation. They’re trained to make investment decisions and have the expertise to pick the most appropriate securities for their client’s portfolios. In many cases, they have non-financial industry experience that provides an edge when it comes to choosing investments. Money managers also typically have access to research reports, financial statements, analytics data and advanced financial modeling software. Their tools and resources help them make investment decisions with a higher likelihood of success.
How to Select a Money Manager
Before you choose a money manager, you’ll want to do some research to determine which one might be the best option for you. This includes deciding on the specialty or type of money manager you might need, reviewing the background and experience of potential choices and then interviewing your best option to make sure it’s a good fit. Let’s take a closer look at how each step of that process might work.
1. Decide on the Type of Money Manager You Need
You should also take an honest look at your own financial plan and investment portfolio to help you determine what type of money manager you need. If you are just starting out with investing, you’ll likely prefer a different professional than someone who works in the financial sector but doesn’t have time to manage their own portfolio. Those who require more robust planning may turn to a certified financial planner that can help with basic budgeting and estate planning as well as investing.
2. Review Your Money Manager Options
Once you’re clear on your own needs and preferences, you are ready to evaluate your options. After a background check that verifies a money manager’s regulatory qualifications and competencies, you’ll have access to details about their experience as well as any previous client complaints. Review how their client portfolios performed in the last few years, and see if they typically manage someone with a similar financial background to your own. It’s also important to understand how they make their money as not all money managers are compensated a percentage of their client’s portfolios.
3. Interview the Best Options
Experts suggest speaking with a few of your best options. That way, you can learn more about their communication style, investment philosophy, propensity for risk and general demeanor. Though it can be difficult to determine from one conversation, try to get a feel for the level of personalization and service you can expect. They may prefer certain types of client-manager relationships and you want to ensure they are a good fit for your needs and preferences. Money managers are accustomed to having different levels of autonomy over client portfolios, and you want to make sure they will keep your desires in mind.
Investing is a risky endeavor that typically takes a lot of time and effort to get right. It can greatly improve your financial standing, but it can also leave you in serious debt if you aren’t careful. Although you could probably do it on your own, a professional has the expertise and information to manage your portfolio. Money managers are one of several professionals that can help. They specialize in providing investment advice, day-to-day trading, performance monitoring and long-term planning.
Tips for Money Management
A money manager can be a powerful resource when it comes to administering your investments. A financial advisor, on the other hand, can help you develop a well-rounded plan to improve your fiscal health. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Whether if it’s you or a money manager handling you portfolio, be sure to diversify your assets. By spreading your assets among a range of investments, you can reduce risk and maximize your chance for return. An asset allocation calculator can help you select a mix that aligns with your risk tolerance.
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