The Differences Between a Fund Manager and a Stock Broker

Fund Managers and Stock Brokers both strive to make profits for their clients or funds through buying and selling securities. However the strategies, time horizons and how they are paid differ significantly. Some investors prefer to write a cheque to a fund manager and leave it at that. Others prefer the hands-on engagement and transparency of a stock broker. Here we list the differences between each of the two roles.

The role of a Stock Broker

The job of a Stock Broker is to select stocks for a client to maximise the return on their portfolio. They may take into account each client’s individual circumstances. For instance, a retired client may want income and have a risk adverse profile whereas a client who is still working may prefer capital gains and have a high risk profile. The Stock Broker will choose trades which they think will generate a good return. The Stock Broker may hold these positions for weeks or months and then they will sell the trade when it has reach the level they want to take profits. They may then buy another trade with the money made.

The role of a Fund Manager

Each fund will have a strategy which each Fund Manager will adhere to. There are lots of different funds out there in the market today. You can choose to invest in a fund which specialise in small caps, to funds that specialise in alternative investments. The role of the Fund Manager is to pick and choose stocks to ensure the value of the fund increases and is aligned with the fund’s strategy. Investors buy units in the fund and when they want to sell, they redeem units. Individual clients do not own stocks in the fund under their own name, they are only buying units from the fund. The unit price reflects the value of the fund’s assets. The selection of stock is not tailored for each investor but rather for the strategy of the fund.


As stock brokers provide financial advice to individuals, they need to be RG146 compliant. This is a financial regulation for anyone providing financial advice. Fund managers however are involved with the implementing the strategy of the fund and are not giving financial advice to individuals so do not need these qualifications.


A Stock Broker’s role is to select stocks to buy and sell but the client still needs to consent to the trade. This allows the client to think about the stock advice given and whether they are comfortable with the idea. Fund managers do not need to receive the clients consent when transacting trades. Clients deposit money in the fund and it is the fund managers job to ensure the funds are invested are generating a good return with the strategy of the fund. Some Stock Brokers can get away with not seeking consent for each and every trade if they operate what is known as a Managed Discretionary Account (MDA).

Time Horizon

Some fund managers have a long-term view when holding their positions. This means that they may hold a stock for more than five years. Stock Brokers tend to hold positions for a shorter time frame of a few weeks to a few months when they see the appropriate exit points and then enter another trade to maximise profits.

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Managed fund fees are higher than what is common in the brokerage industry. This is because fund managers generally charge a portfolio management fee and a performance fee which they receive if they perform above the market benchmark. With stock brokers, they are usually only paid brokerage so that is the transaction cost that is charged when you buy and sell a trade. Therefore, even if a fund manager does not transact any trades in the fund in a month, they will still get paid the monthly management fee.


Fund managers have traditionally been viewed to having superior returns than stockbrokers. However due to the high management and portfolio fees, these fund returns have not performed very well in the past few years. We wrote an article about direct shares compared to managed funds and we uncovered that managed funds have been underperforming against the market benchmarks.

Lauren Hua is a private client adviser at Fairmont Equities.

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