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 a Money Manager Works

Money managers provide their clients with personalized service, an individualized portfolio, and ongoing management. With fee-based management, as opposed to transaction-based management, the client and his or her adviser are on the same side, which means clients no longer have to question the decisions of a broker to buy or sell their securities. A professional money manager does not receive commissions on transactions and is paid based on a percentage of assets under management. Thus, it is in the best interest of both the money manager and client to see the portfolio grow.

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.

How Is a Money Manager Paid?

Money managers typically charge management fees ranging from 0.5% to 2% per annum, depending on the portfolio size. For example, an asset management firm may charge a 1% management fee on a $1 million portfolio. In dollar terms, this equals a $10,000 management fee. ($1,000,000 x 1 / 100). Asset managers and hedge funds may also charge a performance fee, which is remuneration for generating positive returns. Performance fees typically range between 10% and 20% of the fund’s profit. For instance, if the fund charges a 10% performance fee and returns $250,000 profit, the client pays an additional $25,000 in fees ($250,000 x 10 / 100).

Real-Life Example of a Money Manager

Examples of leading money management firms that accept retail investors’ funds include Vanguard Group Inc., Pacific Investment Management Co. (PIMCO), and J.P. Morgan Asset Management.

Famous individual money managers include Warren Buffett of Berkshire Hathaway and Bruce Berkowitz of the Fairholme Fund.