Money Manager Definition

A money manager is a third-party individual or an entity providing money management services to their clients, offline and online. They make prudent decisions in the client’s best interest and maximize their financial gains. 

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Money managers, sometimes called investment managers, portfolio managers, or asset managers, are financial experts in accounting, investing, and taxation. Their functions include budgeting, planning taxes, controlling expenses, and managing securities portfolios and investments. They charge a fee depending on the extent of the services they offer.

Key Takeaways

  • A personal money manager is a finance expert who manages clients’ accounts and investments. In addition, they provide services like budgeting, portfolio management, accounting for taxes, and other expenses.They charge a fee as a percentage of the total value of accounts handled, assets or income. Usually, the fee charged is not more than 1% of the value of the funds managed.Hiring a personal money manager to handle finances is as easy as visiting a website or downloading an app and signing up online.

What Do Money Managers Do?

Money managers are professionals with a CFA (Charted Financial Analyst) or a degree in finance, accounting, economics, or business that helps them to deeply analyze the financial performance of an individual or an entity and make better decisions. They avoid taking unwarranted risks because they charge a fee, not a commission.

A money manager’s prime role includes maintaining clients’ accounts, advising them on financial decisions, and presenting attractive options. In addition, they use their research skills, expertise, and experience so that the client benefits the maximum. 

In today’s world, people are leading busy lives. With increased commitments, especially towards their career, they do not want to spend time speculating or going through their expenses and income unplanned. Therefore, they designate this task to a professional, a personal money manager who can reduce the time and effort that goes into planning their finances. They do not charge a commission but charge a fee, usually as a percentage of the value of the accounts they manage. Hence, they want their client’s portfolios to grow exponentially.  

Nowadays, individuals and firms can find some of the best money manager apps online and start saving more with professional guidance. The use of money managing apps is gaining prominence in this field. It helps professionals and customers connect online. It also facilitates 24X7 support and constant updates related to investments. As self-directed investors’ need to use online apps and services becomes complex, they switch to human advisors.

Some top investment and wealth management firms are Goldman Sachs, BlackRock, USB, Morgan Stanley, Vanguard Group, J.P. Morgan & Co., Edward Jones, and Capital Group. Some examples of well-known money managers in the financial world are Warren Buffett, Benjamin Graham, Peter Lynch, and Sir John Templeton.

Money Manager Functions

Here’s how they can offer financial assistance to their clients:

  • Budgeting – Monitoring and managing income, controlling expenses, and saving money are necessary budgeting functions that managers perform.Planning Taxes – Evaluating, planning, settling transactions, and filing taxes are additional services the managers offer. Monitoring Assets – Providing personalized services, supervising the customer’s holdings like buying, selling, mortgage, and other services, and measuring their financial performance.Managing Portfolio – Helping investors maintain and diversify their portfolios through speculation and expertise.Currency Trading – Forex money managers help assess fluctuations and evaluate the risks associated with foreign currency.

Examples

Here are some money manager examples to understand the concept better:

Example #1

Stacy is a software engineer and wants to maintain her finances. However, she cannot do so due to her busy schedule. So, Stacy approaches a professional money manager Reynold for financial guidance. She communicates her goals with him– making investments and upgrading her car. Reynold verifies her documents, credit reports, and income statements and assesses the value of her assets.

After analyzing Stacy’s financial situation, Reynold presents a budget with insights into how she can spend less and save more. He also provides her with many investment suggestions based on her accounts. Following Reynold’s financial advice, she could upgrade her car with more savings and earn a good return on investment. Thus, they helped her manage her funds and accomplish her goals.

Example #2

2019-2020 highlights the importance of advisor-to-client wealth-management advice and the prominent roles that money managers play in their client’s financial lives.

In North America, during the COVID-19 pandemic, the personal human touch of money managers helped wealth management clients rise above fear and uncertainty. In 2020, though the advisors struggled to gain new clients, the existing client relationships became healthier.

Client retention went all-time high from 94.4% in 2019 to 94.6% in 2020  due to the importance of human advice and depth of relationship. As a result, client portfolios were high than ever, and the average asset per new client reached a high from $705,000 in 2016 to $905,000 in 2020.

As clients wanted to take advantage of the volatility in the market, they took the help of money managers, so equity trades per advisor rose from 161 in 2019 to 192 in 2020. 

Why Should You Hire A Money Manager?

Money managers can help non-finance professionals who do not know about capital markets. In addition, they have a fiduciary duty to ensure the safety of their client’s funds and act in their best interest. These professionals also develop financial strategies for their clients to help them achieve their varying financial goals, including principal safety and returns maximization.

They have confidential, research-driven information about the financial markets, which they use to devise strategies for their clients. They can provide a customized portfolio investment for each client separately or maintain a set of mutual funds, hedge funds, private equity funds, pension funds, or other funds that clients can purchase directly.

Here are the main reasons to hire a professional money manager:

1. Spend less time and effort in planning

Clients do not have to spend time planning their expenses based on their income. Instead, communicating personal goals to the money manager helps them plan their future finances.

2. Make well-judged financial decisions

Money managers advise their clients to make the best buying or selling decisions. For example, managers can guide a person who wants to buy a house. They can help that person with which loans to choose, how much to borrow, and how much to pay. 

3. Tax Guidance

Money managers can reduce an individual’s effort by assisting them with filing taxes. This service is necessary for companies, as they pay huge taxes.

4. Invest wisely

Many. Since money managers are involved in deep market-driven research rather than speculating, they can provide their customers with the best investment options, like government securities, stocks, and cryptocurrencies.

5. Better than brokers

Investment brokers usually charge a commission based on returns. Hence, they make decisions that are in the broker’s best interests. But investment or money managers provide other services too and charge a fee independent of the returns earned. So they can maximize the customer’s gains.

This has been a guide to Money managers and its definition. Here, we explain their functions, examples, and reasons to hire them. You can learn more from the following articles –  

Money managers use their financial expertise to provide professional services related to accounting, financial management, taxation, and investment by charging a pre-determined fee. According to Indeed, they get paid around $95,445 on average, with some experienced managers making almost $200,000.  

The main difference between a financial advisor and a money manager is that the former advises investments and credit. In contrast, the latter offers guidance in budgeting, filing taxes, and the services provided by financial advisors in addition to those offered by financial advisors.

Mostly, it depends on the individual. A money manager can manage independently if the person has a financial background, such as a finance teacher or a finance student. However, they can be worth it if someone does not have the time to manage finances or is looking for professional advice.

Professional money managers do not charge a fixed fee. Instead, they charge a fee as a fixed percentage of the total value of assets, income, and investment returns. They generally charge a fixed rate of around 0.25% to 1% per annum as a fee.

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