When you go to an investment advisor and open a brokerage portfolio, who actually watches your money?
The answer depends on the type of account you open. Generally, investment accounts are handled by a team: an investment advisor, money manager (if selected), and you. Each plays a different role, and it’s important to understand the different functions.
Your investment advisor helps you plan and execute
An investment advisor helps you build your financial plan. He examines your goals and needs, risk tolerance, and personal circumstances. Based on this knowledge, he advises you on which investments are the most appropriate to meet your goals. He follows your orders and buys and sells the investments you choose.
While your investment advisor makes recommendations in order to tailor your portfolio to your needs, he does not monitor your account on a daily or monthly basis. It is up to you to check your statements and watch the account’s value. Unless you explicitly give your advisor discretionary power (which is generally not a good idea), you are in charge of all trading decisions.
Your money manager makes discretionary choices
A professional money management company is a firm that oversees trading for institutions and uses investment advisors to with connect individual investors. The money managers’ research teams make trading decisions on a discretionary basis, according to the stated goals of the program.
Even if a money manager handles the day-to-day trading decisions, the investor needs to be involved to make sure that the money manager’s performance still matches their goals and risk tolerance.
Financial advisors and money managers play separate roles in managing your money. But at the end of the day, ultimate responsibility is in your hands. Using a money manager removes the onus of always watching the market, but you need to make sure the actual portfolio as a whole continues to meet your risk tolerance and goals. Your financial advisor can help you with that during periodic portfolio reviews.
To learn more about the different roles professionals take in overseeing your account, watch this 4-minute video that I made.
Douglas Goldstein, CFP®️ is the director of Profile Investment Services, Ltd. www.Profile-Financial.com He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation on how to set up your American assets to meet your financial goals. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.
Published August 24, 2015.