What’s the difference between a Money Manager, Investment Advisor and a Financial Planner?

Professional management requires several entities and consultants. It can be confusing to figure out who is responsible for what. Comprehensive management of investments requires three components: advice (investment advisor), planning (financial planner), and execution of trades (broker-dealer). Affluent investors who want all these components provided by a single manager should consider institutional direct. Unfortunately, the lines between these components become messy because investment advisors don’t always explain the other parties and their roles.

Investment Advisors

Investment advisors use their skill and knowledge of the industry to help investors allocate their monies based on their goals, risk, needs, and time horizon. Advisors consider where the investor is in their journey, and how much they need to save for the future. A good investment advisor guides their clients to make the right decisions with their money for an annual fee. Most investment advisors don’t have a license to execute trades as a broker-dealer, and often they are employed by an investment firm/broker-dealer. Many advisors are limited to only advising on how to allocate your money.

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It can be confusing when a retail investment advisor presents themselves as a professional money manager. Sometimes this can lead to poor results due to the advisor’s lack of skill, licensing, or experience in managing money directly. To make matters worse, investment advisors do not fully disclose the real costs of the products they use to manage their clients’ money. Advisor fees are generally between .50% and 1.50%, but other fees like management fees and trading fees exist within the products they use.

Money Managers

Professional money managers are generally licensed professionals who manage portfolios for mutual funds, ETFs, institutional investors, or large investment firms. Money managers are often employed by brokerage houses to manage clients’ assets for an asset management fee. Money managers evaluate the individual holdings within the portfolios and make sure the portfolio’s discipline is adhered to. Professional money managers rarely, if ever, interact with the client – as that is the job of investment advisors.

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Seldom do money managers have direct contact with the individual investor, nor do they concern themselves with the client’s specific needs. The money manager’s fee is in addition to the investment advisor’s fee.

Financial Planners

Licensed financial planners are generally there to help their clients map out a retirement plan based on the client’s income and healthcare needs. Sometimes investment advisors will have an investment advisor license along with a financial planning license. This allows them to wear two hats: one for planning and one for daily advice. Seldom do either of these hats encompass the process of managing the portfolio. Many of the industry’s planners use model portfolios from the investment firm or broker-dealer where they are licensed.

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Generally, most of the industry’s financial planners do plans for a fee, but that is not the only cost associated with having your funds managed. Other costs like expense ratios and hidden trading costs also detract from a portfolio.

Broker-Dealers and Investment Advisory Firms

Most retail investment advisors are licensed to give advice, but seldom do they own the broker-dealer investment firm to transact trades. The broker-dealer is the firm that executes the trades for portfolios. If an investment advisor charges a fee, but only places their investors into a third-party fund, then they don’t need to carry a broker-dealer license or own the broker-dealer directly.

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A broker-dealer allows affluent investors to access private bond portfolios tailored to their income needs without the ongoing fee for advice. Many investment advisors avoid getting the broker-dealer license because of testing requirements and regulatory hurdles. Advisors who do have the license are generally employed by a broker-dealer, but seldom do they own the broker-dealer.

Institutional Direct

Built for affluent investors with over $2 million in investable assets, institutional direct takes all four domains of investing and puts it under one roof: the investment advisors, financial planners, money managers, and broker-dealer/advisor firm. This allows affluent investors to access a team of advisors and planners when building their tailored portfolio. This unified team working on behalf of the investor can make sure the client’s strategy suits their goals in a comprehensive way. The concept of institutional direct was founded by Stephen Thomas, of Linden Thomas & Co., after 25 years working with big Wall Street firms. He realized keeping the functions of advisors, planners, portfolio managers, and broker-dealers separated means investors would have layers of costs without a direct relationship to the firm who managed the portfolio. Seeking to break tradition, Linden Thomas & Co. and their team of professionals set out to establish a wholly owned broker-dealer/portfolio management firm.

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Because affluent investors have their funds managed by professional advisors, planners, and a broker-dealer, they have direct access to the tailored portfolio management, advice, and planning needed to navigate the financial landscape. Having all of these functions under one roof adds coordination and removes the layers of costly hidden fees.