Can I Hire Someone to Manage My Money?

It is common for individuals to consider professional assistance with their financial affairs. Managing personal finances has grown in complexity, often requiring specialized knowledge in investments, taxation, and retirement planning. Many people lack the time or expertise to navigate these intricate financial landscapes effectively. Engaging a money manager can provide structured guidance and tailored strategies. The process involves understanding the types of professionals available and identifying the one best suited to individual financial objectives.

Understanding Different Types of Money Managers

Various professionals specialize in managing money, each with a distinct focus and client base.

Financial advisors: Often called financial planners, they offer comprehensive guidance across a person’s financial life. Their services range from budgeting and savings strategies to investment and retirement planning, helping clients develop a holistic financial plan to meet long-term goals.
Wealth managers: Cater to high-net-worth individuals, providing an integrated suite of services. Beyond investment management, their offerings encompass estate planning, tax optimization, and philanthropic advising, focusing on preserving and growing wealth across generations.
Investment advisors: Also known as portfolio managers, they primarily manage investment portfolios. Their expertise lies in asset allocation, security selection, and ongoing portfolio rebalancing to align with client risk tolerance and financial objectives.
Robo-advisors: Use automated, algorithm-driven platforms to manage investments. These services offer lower costs and are accessible with smaller initial investments, suitable for individuals seeking basic portfolio management without extensive human interaction.
Broker-dealers: Facilitate the buying and selling of securities for clients, earning commissions on transactions. While their main role is trade execution, clients should understand the relationship, as advice may be incidental to their primary business.

Services Provided by Money Managers

Money managers offer a broad spectrum of services to address various financial needs.

Investment management: Involves the strategic creation, rebalancing, and ongoing oversight of a client’s portfolio. This includes determining asset allocation, selecting specific securities, and adjusting holdings in response to market conditions or changes in client goals.
Financial planning: Encompasses strategies for future financial security. This can involve planning for retirement, funding education expenses (often through 529 plans), and planning for significant life events like purchasing a home or starting a business.
Tax planning services: Aim to minimize a client’s tax liabilities related to investments and income. Professionals advise on tax-efficient investment strategies, such as utilizing tax-advantaged accounts or tax-loss harvesting, to optimize after-tax returns.
Estate planning guidance: Helps clients organize affairs for efficient wealth transfer to beneficiaries. This service often involves discussions about wills, trusts, and strategies to reduce estate taxes or avoid probate.
Risk management and insurance planning: Involve assessing financial risks and recommending appropriate insurance coverage. This includes evaluating needs for life, disability, and long-term care insurance to safeguard a client’s financial well-being.
Budgeting and cash flow management services: Assist clients in organizing personal finances. This involves analyzing income and expenses, identifying areas for potential savings, and establishing spending plans to facilitate better financial habits.

How Money Managers Earn Fees

Understanding how money managers are compensated is crucial for clients to assess potential costs and identify any conflicts of interest.

Fee-Only Model

The fee-only model pays advisors solely by the client. This typically involves a percentage of assets under management (AUM), ranging from 0.5% to 1.5% annually, depending on asset size and services provided. Other fee-only arrangements include hourly rates (between $150 and $400 per hour) or flat fees for specific projects like a financial plan ($1,000 to $10,000). This model aligns the advisor’s interests directly with the client’s, as compensation grows only when the client’s portfolio grows. It minimizes incentives for advisors to recommend specific financial products based on commission payouts, fostering transparency.

Commission-Based Model

Commission-based advisors earn compensation from products sold to clients, such as mutual funds, annuities, or insurance policies. For instance, a mutual fund may have a “load” or sales charge, a portion of the investment paid as commission to the advisor. While clients might not pay an explicit fee, the costs are embedded within the product itself. A potential conflict of interest can arise, as advisors might be incentivized to recommend products that offer higher commissions, regardless of suitability. Clients should understand all charges associated with recommended products.

Fee-Based Model

The fee-based model is a hybrid where advisors charge direct fees (e.g., AUM) and earn commissions from product sales. This blend can make it more challenging for clients to discern the total cost of services and potential conflicts. While a portion of their compensation is tied to client assets, another part may still be influenced by commissions, differing from the pure fee-only structure.

Steps to Selecting a Money Manager

Selecting a money manager requires careful consideration to align with your financial needs and goals. Begin by defining your financial situation and objectives, such as saving for retirement, purchasing a home, or planning for a child’s education. Understanding what specific services you require, whether comprehensive financial planning or focused investment management, will help narrow your search.

Investigate credentials and designations held by prospective money managers. Common certifications include Certified Financial Planner (CFP) and Chartered Financial Analyst (CFA). Other relevant designations might include Certified Public Accountant (CPA) or Personal Financial Specialist (PFS).
Understand the difference between a fiduciary duty and a suitability standard. A fiduciary is legally obligated to act in your best interest at all times. Professionals operating under a suitability standard must only recommend suitable products, not necessarily the absolute best option. Seeking a manager who adheres to a fiduciary standard offers greater protection.
Perform background checks on potential money managers. Resources like FINRA BrokerCheck allow you to check professional history, licenses, and disciplinary actions of brokers. The SEC’s Investment Adviser Public Disclosure (IAPD) website provides similar information for investment advisors.
Interview prospective managers to assess their investment philosophy, communication style, and client service approach. Ask about their typical client-to-advisor ratio and request references from existing clients to gauge satisfaction and service quality.
Review all disclosure documents provided by the money manager. Registered Investment Advisers (RIAs) are required to provide Form ADV Part 2, which details their services, fees, disciplinary history, and potential conflicts of interest.

Formalizing the Client Relationship

After selecting a money manager, formalize the client relationship through procedural steps.

Sign client agreement: The initial step involves signing a client agreement or contract, outlining terms of service, fee structure, and responsibilities. This document serves as the legal foundation for the professional relationship, ensuring clarity on expectations and obligations.
Provide financial information: Provide the money manager with comprehensive financial information, including recent bank statements, investment account statements, and past tax returns. Details regarding existing estate documents, such as wills or trusts, are also necessary for integrated financial planning.
Communicate goals and risk tolerance: Provide information about income sources, regular expenses, and financial liabilities. Communicate your financial goals (e.g., retirement age, savings targets) and risk tolerance, which helps the manager tailor investment strategies.
Set up accounts: Set up accounts through which your assets will be managed. This may involve opening new investment accounts in your name with a custodian firm or transferring existing assets. The manager will guide you through the necessary paperwork.
Initial onboarding meeting: An initial onboarding meeting follows account setup and information gathering. During these interactions, the money manager will review the initial financial plan and investment strategy, explaining recommendations and addressing any questions.