When choosing someone to manage your investments, you need to ensure that the individual is the right one for the job. After all, your future security is on the line. One choice you have to make is whether to work through a trust company as your investment manager or as a broker.
Related Blog: 3 Things to Consider When Choosing a Trust Company
A trust company acting as an investment manager focuses on long-term financial planning, fiduciary responsibility, and tailored portfolio guidance, while a broker primarily executes investment transactions and earns commissions. Investment managers are generally held to a fiduciary standard; brokers are typically held to a suitability standard.
When you’re choosing someone to help manage your investments, the role, compensation structure, and legal obligations of that professional can significantly impact your outcomes and long-term alignment with your financial goals.
What is Their Scope of Work?
The first area where an investment adviser and a broker differ is in the scope of the work. As mentioned earlier, brokers are more transaction-based. Their primary goal is to sell products that will help you reach your financial goals. While brokers may provide advice and consult with their clients, most of their work consists of buying and selling investment products.
Investment managers, on the other hand, are focused on giving advice. They will provide financial services, but they also offer planning and investment guidance to their clients. They take the time to look at the entire financial picture, factor in the goals of the client, and set a plan that will help the client reach them. In some cases, investment managers may partner with other financial professionals in an effort to help their clients achieve their goals.
How are Their Fees Structured?
These two roles also differ based on how the individual is compensated. A broker is typically paid by commission. For every financial product sold, the broker receives a percentage of the sale. This can create a conflict of interest, because the broker may choose to offer only those products that bring the highest commission.
Conversely, investment managers use fee-only or fee-based compensation models. While fee-based advisors can receive commissions from products they sell, they also earn compensation from fees paid directly by clients. Fee-only advisors do not sell financial products; therefore, they’re motivated to present options with low fees, tax efficiency, and other features that prioritize your needs and goals.
How are They Held Accountable?
Finally, the way the professional is held accountable for decisions made is different. A broker is legally required to recommend investments based on “suitability.” This means that the investments must be deemed suitable for the client and the client’s goals. Legally, this allows the broker to present those products that bring the highest commission to them, just as long as they are suitable.
Investment managers, on the other hand, are required to act as a “fiduciary.” This means they legally must act in the best interests of the client with “undivided loyalty.” If an advisor is not providing the right guidance to a client, the client can hold them legally responsible for poor investment advice.
Both brokers and investment managers are licensed professionals who have a place in the investing landscape. Depending on your investment needs, either option can deliver the desired results. At Caldwell Trust, we can help you determine whether an investment manager or broker is best to work with. Contact us today to start reaching your financial goals.
Frequently Asked Questions About Trust Companies vs. Brokers
What is the difference between an investment manager and a broker?
An investment manager typically provides ongoing portfolio management and investment guidance based on your financial goals, risk tolerance, and broader financial picture. A broker primarily facilitates the buying and selling of investments and may also make recommendations about specific securities or investment strategies.
What does a trust company do as an investment manager?
A trust company acting as an investment manager can develop and manage an investment strategy based on your long-term objectives. Depending on the relationship, this may include portfolio management, asset allocation, ongoing monitoring, and coordination with trust, estate, tax, and wealth planning goals.
Is a trust company acting as an investment manager a fiduciary?
When providing fiduciary investment management services, a trust company has a responsibility to act in the client’s best interests. This can be especially valuable for individuals and families who want investment decisions coordinated with broader wealth preservation, trust administration, and estate planning objectives.
How are investment managers and brokers typically paid?
Investment managers commonly charge fees based on assets under management or another advisory fee structure. Brokerage compensation can vary and may include transaction-based commissions, account fees, asset-based fees, or other forms of compensation. Before choosing a financial professional, it is important to understand how they are compensated and whether potential conflicts of interest exist.
Why might someone choose a trust company to manage their investments?
A trust company may be a good fit for individuals and families looking for ongoing investment management combined with broader wealth planning and fiduciary services. This approach can make it easier to coordinate investments with trusts, estate plans, family goals, charitable strategies, and long-term legacy planning.
What should I consider when choosing between a trust company and a broker?
Consider the level of ongoing guidance you need, how each professional is compensated, the services included, how your investments will be monitored, and how investment decisions fit into your broader financial and estate plan. Asking about fees, responsibilities, conflicts of interest, investment philosophy, and communication can help you determine which relationship best fits your needs.
