What is a Money Manager?

What is a Money Manager?

A money manager is a person or financial firm that manages the securities portfolio of an individual or institutional investor. Typically, a money manager employs people with various expertise ranging from research and selection of investment options to monitoring the assets and deciding when to sell them.

In return for a fee, the money manager has the fiduciary duty to choose and manage investments prudently for clients, including developing an appropriate investment strategy and buying and selling securities to meet those goals. A money manager may also be known as a “portfolio manager,” “asset manager,” or “investment manager.”

How Do Money Managers Operate?

For a fee, money managers provide money management services to clients. Money managers can either create a customized portfolio of investments for each client or maintain a set fund that clients can buy into. The former of the two is more common in retail banking, whereas, the latter is more common in large-scale money management like mutual funds or hedge funds.

Compensation for money managers can also vary. Some money managers only charge either a one-time fee or a periodic one. Other money managers charge a commission-based fee, i.e., 20% of profits.

However, more commonly, money managers charge either a fixed fee and a variable fee. A common fee structure is the 2 and 20; it is where a 2% fixed fee of the assets under management are paid and 20% of profits are also paid as a commission. Some argue that the commission-based fee increases the incentives of a money manager to maximize the returns of the investor and may decrease any moral hazard that may occur.

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Reasons to Use a Money Manager

A professionally trained money manager has the expertise to select the most appropriate investments for his or her client’s portfolio. Money managers typically hold a Chartered Financial Analyst (CFA) designation that helps them assess a company’s fundamentals by analyzing their financial statements. A money manager may also have expertise in a specific sector. For example, the manager may have previously held roles in the automotive industry that provides an edge when selecting auto stocks.

Money managers have access to a plethora of information and tools such as interviews with company executives, research reports, analytics data, and advanced financial modeling software. Having these resources allows money managers to make investment decisions that have a higher probability of success. For instance, a money manager might discover that a company has a unique competitive advantage after interviewing its CEO.

Other Functions of Money Managers

Money managers may also provide research, or their institution’s research, on the capital markets and economy. The research can be very helpful for an investor to understand some of the decisions a money manager would make regarding investments.

Market research can help investors understand what they are looking for in the current market and help make important decisions, i.e., if they would like to be risk-on or risk-off. Additionally, money managers may provide tax advice for their clients to help them keep most of their realized gains through the money management service.