Investment management refers to the professional handling of an asset portfolio. 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 the management of their investment portfolio. If you need help finding and choosing a financial advisor in your area, check out SmartAsset’s free matching tool.
What Are Investment Management Services?
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. 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, the investment manager will develop a personalized portfolio strategy. In addition, they will identify the best allocation of assets for your portfolio. As part of an ongoing relationship, your manager will periodically adjust this allocation based on changes in your goals.
Once your portfolio plan is set, 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, as they use what’s called “custodial accounts” at larger brokerage firms.
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 investment purchase or sale by you before initiating it.
How to Choose an Investment Manager
You have a wide range of choices in picking an investment manager. Major financial companies, like Northwestern Mutual and Goldman Sachs, have investment management divisions, with full teams dedicated to working with clients. In addition, there are firms, large and small, that specialize in investment management.
Choosing the right company 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? You must also consider the fees each firm charges, and if there’s an account minimum required for management services.
If you need help finding an investment manager or financial advisor to work with, consider using SmartAsset’s free matching tool. Through this, you’ll get to connect with up to three advisors in your area, with the final choice of who to work with being up to you.
How Much Does Investment Management Cost?
Having a professional manage your investments comes at a price. Investment management fees are based on assets under management, or AUM. Managers charge a fee, typically around 1% per quarter, on the amount of money they are managing for you. Most commonly, the firm will debit the fee directly from your account.
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 or funds – 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.
Before you make an investment with a manager, be sure you understand all of the fees and expenses you’ll be paying.
Alternatives to Investment Management
It’s getting easier to manage your own investments thanks to web management services and robo-advisors. You can create an account online with investment services, which will allow you to buy and sell securities on your own. If you’re just looking to put some money into a mutual fund with a set retirement date, 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 or trading costs.
In recent years, there has been a rise in robo-advisors. With these automated services, you can answer a few questions about your investment wants and the algorithms will match you with a 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.
Be careful if you do decide to go it alone. Taxes, withdrawal rules and estate planning are complex topics. You could end up suffering high fees and taxes if you aren’t fully aware of all the factors at play. Moreover, you also likely don’t have the years of expertise and study that an investment manager does, and thus may not have the skills to fully maximize your investments.
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
- Many investment managers also double as financial advisors, meaning they can help you with your financial planning needs as well. For example, they can help you build a retirement plan, manage your estate, choose a life insurance policy and more. To find a financial advisor in your area, try SmartAsset’s free matching tool. You’ll be paired with up to three local advisors, with the final choice of who to work with being up to you. 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), chartered financial analyst (CFA) and certified investment management analyst (CIMA).
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