A money manager researches investments, builds a portfolio matched to your goals, executes trades, rebalances as markets shift, and reports the results back to you, all while legally obligated to put your financial interests ahead of their own. That last part is the point of hiring one: registered investment advisers owe you a fiduciary duty that covers the entire relationship, not just individual recommendations. So when people ask what money managers do, the honest answer runs on two tracks at once: the practical work of managing a portfolio, and the legal standard that governs how that work has to be done.
The Legal Duty They Owe You
Under the Investment Advisers Act of 1940, a registered money manager owes you a fiduciary duty made up of two parts. The duty of care means they must provide advice and make decisions with the skill and diligence a reasonable professional would use. The duty of loyalty means they cannot put their own financial interests ahead of yours, and any conflict of interest must be either eliminated or fully disclosed to you in writing.1SEC.gov. Commission Interpretation Regarding Standard of Conduct for Investment Advisers
This is a stronger standard than what applies to stockbrokers. A broker operating under Regulation Best Interest must act in your best interest at the moment of a specific recommendation but has no ongoing duty to monitor your account afterward. A money manager’s fiduciary obligation continues for as long as you’re a client. That ongoing duty is really what you’re paying for.2U.S. Securities and Exchange Commission. Regulation Best Interest and the Investment Adviser Fiduciary Duty
Research and Market Analysis
Before committing a dollar of your money, a manager digs into potential investments. That means reading the annual and quarterly financial reports public companies file with the SEC, analyzing balance sheets to gauge a company’s underlying value, and judging whether current stock prices reflect that value.3U.S. Securities and Exchange Commission. How to Read a 10-K/10-Q
Fundamental analysis isn’t the only tool. Managers also track broader economic data like GDP growth and interest rate trends to gauge where markets are heading. Some use technical analysis, studying historical price patterns and trading volume to identify entry or exit points. Good managers treat this as continuous work. The investment case for a stock that looked solid six months ago can fall apart if the company loses a major customer or its whole sector faces new regulation.
This is where a manager earns the fee. The average investor doesn’t have time to read hundreds of financial filings, follow macroeconomic indicators, and monitor geopolitical developments that could affect a portfolio. The manager filters thousands of available securities down to the handful that fit your strategy.
Building the Portfolio
Once a manager has candidates in hand, the next step is combining them into a portfolio that fits your goals. This starts with an Investment Policy Statement, a written document that spells out your target allocation across stocks, bonds, and cash equivalents. The IPS also captures your risk tolerance, time horizon, income needs, and any restrictions you want in place.
The split between stocks and bonds is the most consequential decision in the process. A younger investor accumulating wealth might hold 80% in equities and 20% in bonds, accepting short-term volatility for higher long-term growth. Someone near retirement would likely reverse those proportions to protect against a market decline right when they start drawing income. These ratios get set before any trading happens, because building a portfolio without a structural plan is speculation with extra steps.
Diversification within each asset class matters just as much. A manager won’t put 40% of your stock allocation into a single company, no matter how promising the research looks. They spread holdings across sectors, company sizes, and often geographies. Tax placement matters too: investments that throw off heavy taxable income (like corporate bonds) belong inside tax-advantaged accounts when possible, while assets that qualify for favorable long-term capital gains treatment can sit in taxable accounts.
Executing Trades
Moving from plan to action means placing orders through brokerage platforms or institutional trading desks. Investment advisers have a fiduciary duty to seek best execution, meaning the most favorable terms reasonably available under current market conditions. Best execution is more than the lowest commission. It covers the bid-ask spread, the speed of execution, and the likelihood of the full order being filled at the expected price.1SEC.gov. Commission Interpretation Regarding Standard of Conduct for Investment Advisers
Large orders take special handling. A buy order for 500,000 shares doesn’t hit the market in one block, because that would move the price against you. Managers typically use algorithmic tools to break the order into smaller pieces spread across the trading day, minimizing price impact. Institutional commissions run low on a per-share basis, but they add up over thousands of transactions in a year, which is why managers track execution costs carefully.
Soft Dollar Arrangements
Some managers pay slightly higher commissions to brokers in exchange for research reports, data services, or analytical tools. This is legal under a federal safe harbor, provided the manager determines in good faith that the commission is reasonable relative to the value of the research. The research must involve substantive analysis of securities, industries, or economic trends. Ordinary business expenses like office rent, hardware, or phone lines don’t qualify.4Federal Register. Commission Guidance Regarding Client Commission Practices Under Section 28(e) of the Securities Exchange Act of 1934
The catch: those higher commissions come out of your account, not the manager’s pocket. A manager using soft dollars to fund their own research capabilities has a conflict of interest, which is why fiduciary duty requires disclosure. Asking a prospective manager about soft dollar practices tells you a lot about how they handle conflicts.
Trade Errors
Mistakes happen. A manager might buy the wrong security, buy too many shares, or put a trade in the wrong account. The industry standard, reinforced by SEC staff guidance, is that the manager absorbs the cost of correcting these errors. Your account should not lose money because of a manager’s mistake. The manager must fix the error quickly, log it, and cannot net gains from one error against losses from another across different client accounts.
Monitoring and Rebalancing
Markets move, and portfolios drift. If stocks outperform bonds over several months, a portfolio that started at 70% equities can drift to 80%, quietly exposing you to more risk than you agreed to. The manager’s job is to catch that drift and rebalance, trimming what has grown beyond target and adding to what has fallen short.
Rebalancing sounds simple, but taxes make it tricky. Selling a winning position triggers capital gains tax, so a good manager weighs whether the tax cost outweighs the risk of staying slightly overweight. They also watch for wash sale rules: if you sell a security at a loss and buy back a substantially identical one within a 61-day window (30 days before or after the sale), the IRS disallows the loss deduction.5Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities
Managers also measure your returns against a relevant benchmark. A portfolio of large U.S. stocks would typically be compared to the S&P 500; a bond-heavy portfolio might be compared to a broad bond index. Consistent underperformance forces the manager to reassess whether the strategy still holds.
What They Charge
Most money managers charge an annual fee based on a percentage of the assets they manage for you. The median fee among human advisors runs around 1% per year, with a range from roughly 0.25% for robo-advisors to over 1% for smaller accounts. Fees typically decline as your portfolio grows. A client with $500,000 might pay 1%, while someone with $5 million might pay 0.50% or less.
Account minimums vary widely. Financial planners may accept clients with $50,000 to $100,000 in investable assets. Wealth managers serving high-net-worth individuals often require $250,000 to $1 million, and some firms set minimums of $5 million or more. The minimum reflects the level of personalized service the firm provides and the economics of running an advisory practice.
Performance-Based Fees
Some managers charge a fee tied to how well your portfolio performs, typically taking a percentage of gains above a specified benchmark. Federal law limits who can be charged this way. To qualify, you must be a “qualified client” with either a net worth above $2.2 million (excluding your primary residence) or at least $1.1 million in assets under the manager’s control. The SEC adjusts these thresholds for inflation roughly every five years, with the next adjustment scheduled for around May 2026.6Securities and Exchange Commission. Performance-Based Investment Advisory Fees
Performance fees create an incentive for the manager to take bigger risks, since they profit more from larger gains. That’s precisely why the law limits them to wealthier clients who can absorb potential losses. If a manager offers you performance-based pricing, understand the benchmark they’re measuring against and whether the fee applies to gross or net gains.
Where Your Assets Actually Sit
Your money manager generally does not hold your assets directly. Federal rules require investment advisers with custody of client funds to keep those assets with an independent qualified custodian, typically a bank or broker-dealer. The custodian holds your funds in a separate account under your name or in an account clearly designated as holding client assets. That separation matters: if the management firm goes bankrupt, your securities belong to you, not the firm’s creditors.7eCFR. 17 CFR 275.206(4)-2 – Custody of Funds or Securities of Clients by Investment Advisers
The custodian sends you account statements at least quarterly, listing every holding and transaction. An independent public accountant must verify client assets at least once a year through a surprise examination, conducted at an irregular time without advance notice to the manager. These independent checks exist because the history of investment fraud almost always involves managers who controlled custody of client money without outside oversight.7eCFR. 17 CFR 275.206(4)-2 – Custody of Funds or Securities of Clients by Investment Advisers
If your custodian is a brokerage firm that fails financially, the Securities Investor Protection Corporation covers up to $500,000 per account, including a $250,000 limit for cash. SIPC protects against brokerage firm failure, not investment losses. If your stocks drop in value, that’s market risk, and SIPC doesn’t cover it.8SIPC. What SIPC Protects
Reports You Should Expect
Your manager delivers periodic reports showing how your portfolio has performed, typically net of all fees. Reports break down holdings by asset class, show cost basis against current market value, and detail every transaction during the period. Comparing your net returns against the benchmark in your Investment Policy Statement tells you whether the manager is actually adding value above what a low-cost index fund would deliver.
Beyond performance reports, federal law requires your manager to give you a Form ADV Part 2A brochure before you sign an advisory agreement. This document lays out the firm’s fee schedule, investment strategies, potential conflicts of interest, disciplinary history, and the background of key personnel. The firm must either deliver an updated brochure or a summary of material changes within 120 days of the end of its fiscal year. If new disciplinary action arises mid-year, the firm must notify you promptly.9SEC.gov. Form ADV Part 2 – Uniform Requirements for the Investment Adviser Brochure
Managers must also protect your personal financial data under Regulation S-P, which requires written policies covering administrative, technical, and physical safeguards for customer records. A 2024 amendment strengthened these requirements by mandating that firms maintain a formal incident response program to detect, respond to, and recover from data breaches.10Federal Register. Regulation S-P: Privacy of Consumer Financial Information and Safeguarding Customer Information
Federal rules also require investment advisers to preserve trade records, client communications, and performance calculations for at least five years, with records from the two most recent years kept in an accessible office location. If a dispute comes up years later, the paper trail should still exist.11eCFR. 17 CFR 275.204-2 – Books and Records to Be Maintained by Investment Advisers
How to Verify a Manager Before You Hire
Before handing over savings, confirm that the person or firm you’re hiring is actually registered and has a clean record. The SEC’s Investment Adviser Public Disclosure database lets you search any registered firm or individual adviser representative. You can view Form ADV filings, employment history, and any disciplinary events. The same search also checks FINRA’s BrokerCheck system for anyone holding a brokerage license.12Investment Adviser Public Disclosure. IAPD – Investment Adviser Public Disclosure
Professional designations signal competence, though they aren’t interchangeable. The Chartered Financial Analyst credential focuses on investment analysis and portfolio management, requiring three rigorous exam levels and three years of relevant experience. The Certified Financial Planner designation covers broader financial planning and requires thousands of hours of work experience plus ongoing continuing education. Neither designation is legally required to manage money, but both indicate a level of commitment a casual operator wouldn’t pursue.
One boundary worth knowing: if a manager pitches you on private placements or hedge fund strategies, those investments are limited to accredited investors, meaning individuals earning more than $200,000 per year ($300,000 with a spouse) or with a net worth above $1 million, excluding a primary residence. If you don’t meet those thresholds, those strategies aren’t legally available to you regardless of who is offering them.13U.S. Securities and Exchange Commission. Accredited Investors