What is a Money Manager?

In the managed account industry, a "money manager" is a professional who specializes in the management of client funds by means of trading (buying and selling) different securities or asset classes based on a particular methodology or combination of strategies.

A money manager is also known as a portfolio manager or investment manager.

Please note that a money manager is completely different than an investment advisor, who normally specializes in recommending a diversified combination of structured investment products with approval from their clients. The manager, on the other hand, has complete authority to make all buying/selling decisions in an investor's portfolio. This total control of the investment selection and management process is granted to the money manager via a legal document called a limited power of attorney, which the investor signs.

Money Manager Fees

Money managers earn fees in one or two ways. Some charge what is known as a "management fee," which is a fixed percentage charged on a monthly basis on the assets under management. This fee is usually between 1 to 2% a year, but can be as high as 5%. Some money managers get compensated on an incentive basis, also known as charging a "performance fee." A performance fee is usually charged on a monthly basis on new profits the money manager generates. Performance fees normally range between 20 to 50% and provide an incentive to the manager to perform well for the investors (unlike a management fee, which the manager receives whether or not he is profitable).

Some managers receive both a management and incentive fee.

Licensing or Registration

Depending on the asset class a money manager trades and the country where his clients and/or the money manager reside, the manager may have to obtain a specific license or register with a particular organization or governmental body. For example, managers in the United States who work with forex (foreign exchange or currencies) as an asset class, need to pass the "Series 3" exam (administered by the Financial Industry Regulatory Authority [FINRA]), as well as register with the National Futures Association (NFA) as Commodity Trading Advisors (CTA's). Usually, forex money managers from outside of the United States who don't work with US clients do not have to register or obtain any licenses. Even though this may sound as if the US produces better managers than other countries, it is far from the truth. The previously mentioned US exams do not require the manager to have any level of trading or investing skill whatsoever; simply to have some knowledge of industry basics and applicable laws, as well as to pay certain fees to obtain and renew their licenses/registrations periodically.