What is the Difference between a Money Manager and a Broker?
Money managers and brokers differ in two significant ways.
First, brokers typically have a more narrow focus than money managers. Brokers usually specialize in stocks, mutual funds, bonds, money markets, and similar investment opportunities. Money managers are familiar with and able to provide advice regarding these types of investments, but many also help with investment and financial decisions that aren’t tied to the stock or bond market. As mentioned, money managers sometimes offer estate planning, which brokers usually don’t get involved in.
Because money managers may not spend as much time studying the stock market as brokers do, many money managers hire people who have specialty knowledge in stocks and mutual funds to help them monitor changes in the markets and look for opportunities to share with their clients.
Second, brokers and money managers frequently have different fee schedules. Brokers usually charge clients fees based on transactions, adding a fee to each purchase or sale that clients make. Money managers, in contrast, tend to charge a flat, percentage-based fee that’s assessed annually. This fee remains the same regardless of how much activity a client’s account has.
Charging a percentage-based fee, rather than transaction-based fees, ensures that money managers’ motives are always aligned with the interests of their clients. As a client’s portfolio grows, a money manager’s income also grows because the percentage-based fee equates to a larger sum.