A money manager runs your portfolio: picks the investments, trades, rebalances and manages taxes inside the accounts, usually with your permission to act without asking first. It’s paid a percentage of the money it runs: a median 1% a year among fee-only firms that publish prices. A financial planner advises on the decisions around the money: how much to save, when to retire, which accounts to draw from, what insurance you need, how to leave it. Planners often charge for the advice itself, a median $4,500 a year for ongoing planning, $2,000 for a one-time plan or $300 an hour. The question to ask is which of those jobs you can’t, or don’t want to, do yourself.
The short version
| Money manager | Financial planner | |
|---|---|---|
| Core job | Running the portfolio | Advising on decisions across your finances |
| Authority | Usually discretionary: trades without asking each time | Usually advisory: you decide and act |
| Typical price | A percentage of assets, a median 1% | Flat, hourly or per plan: $4,500 a year, $300 an hour, $2,000 per plan |
| Typical credential | CFA or CIMA | CFP |
| Main document | An investment policy statement | A written financial plan |
| Suits | Large or complex portfolios you don’t want to run | Anyone with decisions to make, at any balance |
What a money manager does
The work is the portfolio itself:
- Builds and runs the mix, often from a model portfolio adjusted for you
- Rebalances when markets push the mix off target
- Manages taxes inside the accounts: tax-loss harvesting, asset location, avoiding gains you don’t need to take
- Trades on its own judgment within limits you set, under discretionary authority
Some money managers are firms you hire directly. Others are hired by your advisor: an outside manager running a separate account, or a TAMP supplying the models and trading. A robo-advisor is a money manager with software in place of a person.
What a financial planner does
CFP Board, which sets the standard for the CFP mark, defines financial planning as “a collaborative process that helps maximize a Client’s potential for meeting life goals.” The elements it lists run well past investments: cash flow, risk and insurance, health costs, education, taxes, retirement, giving, and “estate and legacy matters.”
A planner’s output is decisions: when to claim Social Security, whether a Roth conversion pays, how to draw income in a way that keeps taxes low. Many planners also manage portfolios; others are advice-only and leave the investing to you or to a manager. Our guide to advice-only planning covers that model.
Credentials hint at which job someone trained for. Among fee-only advisors in the public graph:
Share of fee-only advisors in the public graph holding each
Source: Wellspent fee report
Our guide to CFP vs CFA vs CPA explains what each takes to earn.
What each costs
A money manager charges on the assets. The fee-only median is 1% (middle half 0.95% to 1%), and most firms lower it as balances grow. Watch for layers. If your advisor hires an outside manager, you may pay the advisor’s fee, the manager’s fee and the funds’ own expense ratios. For example, a 1% advisory fee, a 0.40% outside manager fee and 0.10% in fund expenses come to 1.5%, or $15,000 a year on $1 million. Those rates are an illustration, not medians. In a wrap fee program, the SEC requires the brochure to show the portion of the fee “paid to portfolio managers.”
A planner charges for the advice. Fee-only planners that publish prices charge a median $4,500 a year for ongoing planning, $2,000 for a one-time plan or $300 an hour. See what hourly, one-time and subscription planning cost.
At the medians, a percentage fee and a flat fee cost the same at about $450,000; flat fee vs percentage of assets shows the math. Below that balance, the percentage fee is smaller in dollars. Above it, the flat fee is, and the gap grows with the portfolio, so ask what the manager does beyond holding index funds to earn the difference.
When a money manager is the better choice
- You don’t want to touch the portfolio. Not the trades, the rebalancing or the tax lots.
- The portfolio is large and taxable, where harvesting losses and placing assets well can add up.
- The holdings are complicated: concentrated stock, several accounts, trusts or a mix of managers.
When a financial planner is the better choice
- Your investments are simple. A few index funds don’t need a manager. A planner can check them once a year.
- Your hard questions aren’t about investments: retirement timing, taxes, insurance, a home, children’s education. See tax planning and retirement planning advisors.
- You want a fixed price. Browse flat-fee advisors.
If you need both, you can hire one firm that does both, or a planner who works alongside a manager or robo account. The second costs less when the planner charges a flat fee and the manager is cheap. Our guide to financial planner vs wealth manager covers firms that bundle the two.
How to check which one you’re talking to
Look the firm up on the SEC’s adviser search and open its brochure, Form ADV Part 2A:
- Item 4 describes the services: look for “financial planning,” “portfolio management,” or both.
- Item 8 has to describe “the methods of analysis and investment strategies” the firm uses. A money manager’s is detailed; a planner’s may be short.
- Item 16 says whether the firm takes discretionary authority over your accounts.
- Item 10.D says whether the firm recommends other managers and is paid by them.
The firm’s Form CRS, Item 2, also has to say whether it monitors your investments and how often. For the individual, the brochure supplement lists their credentials, and CFP Board’s verify tool confirms a CFP. Ask both kinds of advisor whether they’re fee-only; our guide to telling whether an advisor is fee-only shows where to check.