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A Guide to Investment Management Services

Investment management refers to the professional handling of a portfolio of securities, like stocks, bonds, options and more. It’s also known as asset management, money management or portfolio management. Investment managers typically buy and sell securities and other assets to achieve specified investment goals for a client. Both individual and institutional investors use investment management services to simplify and maximize the management of their portfolio. If you need help finding and choosing a financial advisor in your area, check out SmartAsset’s free matching tool.

Understanding Investment Management

In short, an investment manager’s job is to make you money on your investments. When you hire an investment manager, the first thing they will do is help you define your investing goals and profile. They may ask you questions like:

  • Are you looking to achieve short- or long-term returns?
  • How much can you afford to invest?
  • How much risk are you comfortable with?
  • When do you want to retire by?

Based on your goals and needs, the investment manager will typically develop a custom portfolio strategy. In some cases, they may set you up with a model portfolio that employs a preset strategy. In addition, they will identify the best asset allocation for your portfolio. As part of an ongoing relationship, your manager will periodically adjust this allocation based on your changing goals.

Once your portfolio plan is put in place, the investment manager will arrange and initiate the actual investment of your money. Most investment management firms don’t physically hold on to your assets. Instead, they use what’s called “custodial accounts” at larger brokerage firms. This can include brokerages like Charles Schwab, TD Ameritrade and others.

As your portfolio ages, the investment manager will buy and sell securities on either a discretionary or non-discretionary basis according to your plan. A discretionary relationship with your manager means they have the right to make investment decisions on their own, in your name. On the other hand, a non-discretionary relationship with your manager means they must run every decision by you before initiating it.

What Are the Different Types of Investment Management?

The most basic form of investment management is a client-advisor relationship with a human financial advisor. This involves going to an investment management firm, interviewing with advisors and choosing one to manage your assets. By working with an in-person financial advisor, you can consistently keep the advisor updated about your needs.

If you don’t mind a more distant relationship with an advisor, you can also sign up with an online advisory firm. These advisors can work with you over the phone and internet to do just about anything a physical financial advisor can. However, if you value knowing your advisor and meeting with them in person, perhaps this isn’t best for you.

For the most hands-off advisory relationship, you can use a robo-advisor. Just as it sounds, a robo-advisor is an automated investment platform that manages your assets using an asset allocation profile and algorithms. When you open an account with a robo-advisor, you’ll be asked your age, proximity to retirement and risk tolerance. From these factors, a suitable portfolio will be drawn up for you. These services generally provide regular rebalances too.

How Much Does Investment Management Cost?

A Guide to Investment Management Services

Having a professional manage your investments comes at a price. Investment management fees are based on assets under management (AUM). Managers charge a fee, typically around 1% a year, on the amount of money they are managing for you. Most commonly, the firm will debit the fee directly from your account on a quarterly basis.

Each trade that your investment manager makes also comes with a fee. Mutual funds charge operating expenses and loads. Stock trades charge transaction fees. Even though your manager is making these trades, you are responsible for the charges.

If you invest $500,000 through an investment manager, they will use that money to buy a selection of stocks, bonds, funds or whatever they’ve determined is the best asset mix for you. The transaction fees are deducted from your account with each purchase. Every quarter, the manager subtracts their management fee from your total holdings.

In the case of robo-advisors, fees are generally pretty low compared to a traditional or online human advisor. That’s because your portfolio’s management is entirely automatic, which leaves very little room for human intervention. Robo-advisor fees are annual and based on a percentage of your portfolio’s size. Rates typically come in lower than 1%, with some being well below that.

When and How to Hire an Investment Manager

If you’re wondering whether you should hire an investment manager, think about what level of interest and time you have to spend on your portfolio. If you don’t have much time or interest, then it might be best to join forces with an advisor. After all, these professionals have ample experience investing and managing assets.

You have a wide range of choices when picking an investment manager. Major financial companies, like Northwestern Mutual and Goldman Sachs, have investment management divisions, with full teams dedicated to working with individual clients. In addition, there are single firms, large and small, that specialize in investment management.

Choosing the right firm for you depends on your personal preferences. Do you want to work with a large company that manages trillions of dollars in assets with full support teams? Or would you prefer to have a small, dedicated firm that potentially offers more personal attention? You must also consider the fees each firm charges, and if there’s any minimum requirements.

One of the best ways to find a fiduciary financial advisor you can trust is to talk to family and friends that have worked with one. You can trust their recommendations, especially if they’re in a financial situation that’s similar to yours.

If you’d rather have the search done for you, there are tools that can pair you with advisors in your area who specialize in investment management. One such option is SmartAsset’s free matching tool. Through this, you’ll connect with up to three local advisors, with the final choice of who to work with being up to you.

Alternatives to Investment Management

A Guide to Investment Management Services

Let’s say you’re interested in investment management, but you’re concerned that all of your needs won’t be taken care of by an investment manager. At this point, you should look into wealth management services, which is customarily provided by financial advisor firms. As you might expect, wealth management accounts for all of your wealth, such as your investments, college funds, retirement accounts, estate plans and more.

In recent years, there has been a rise in robo-advisors. With these automated services, you can answer a few questions about your investment desires and the algorithms will arrange your portfolio. These services are low-cost and easy to use. However, they can’t provide the human knowledge that only comes from years of experience and decision-making in the real world.

It’s getting easier to manage your own investments thanks to digital services and robo-advisors. You can create an account online with investment companies, which allow you to buy and sell securities on your own. If you’re just looking to invest some money into an ETF or mutual fund, that’s easy enough to handle with a few clicks. You can usually see your whole portfolio online, do your own research and move your funds around. You won’t have to pay management fees, but you will have to pay other investment fees, like loads and trading costs.

Be careful if you do decide to go at it alone. You could end up suffering high fees and taxes if you aren’t fully aware of all the factors at play. Moreover, you also don’t have the years of expertise and study that an investment manager does. Thus, you may not have the skills to fully maximize your investments.

Bottom Line

It’s a smart choice to work with an investment manager when you start thinking about your retirement. Managers receive training so they can find the best allocation of assets to yield results. Working with someone early in your career can help you get your finances in line for a substantial payoff after retirement. A retirement calculator can help you determine exactly how much you’ll need to save.

Tips for Choosing an Investment Manager

  • Investment managers and financial advisors are often synonymous, only they can also help with financial planning. For example, they can help you build a retirement plan, manage your estate, choose a life insurance policy and more. Use SmartAsset’s free matching tool to get paired with up to three advisors in your area. Get started now.
  • Investment management services don’t come free, so be sure you understand all financial advisor fees. Be sure to shop multiple firms so you know you’re getting the best services for you money.
  • Take note of an investment manager’s certifications. These indicate how much experience and education they have. Some certifications to look out for include certified financial planner (CFP) and chartered financial analyst (CFA).

Photo credit: ©iStock.com/anyaberkut, ©iStock.com/filadendron, ©iStock.com/JohnnyGreig

Danielle Klimashousky Danielle Klimashousky is a freelance writer who covers a variety of personal finance topics for SmartAsset. She is an expert on topics including credit cards and home buying. Danielle has a BA in English from Wesleyan University.
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