Investment Manager Definition
An investment manager is any individual or company which maintains or manages the portfolio of a client and invests in securities on behalf of the said client. Simply put, an investment manager helps a client invest his or her money in a given portfolio, security, or asset within the comfort level of the client. The client in this case gives a detailed guide of his risk tolerance level; whether or not he or she is open to high risks, as well as his profit desires regardless of the level of risk. This information is very important to the investment manager (who might just be a single person or an organization in the case of a hedge or a mutual fund) as it helps him or it takes the best decisions for the investor. An investment manager may be assigned to all or some parts of the management of a client’s portfolio. Related tasks might include stocks or securities picking, buying and selling of securities and assets, maintaining and monitoring the performance of a portfolio, dealing with other investors or markets on behalf of clients, measuring the performance of the portfolio with regards to the market performance and that of the previous year, as well as making sure that a client’s portfolio complies with the rules of regulatory bodies in whatever securities or assets that he or she might be investing in.
A Little More on What is an Investment Manager
Investment managers can be single entities in the form of individuals, or large bodies in the forms of investment companies, hedge funds, and mutual funds. The number of investment managers maintaining a client’s portfolio may vary, although one to two is the most known amount in the investment world. Investment managers can also have companies in different parts of the world, as they can be multinationals who take on a lot of clients as long as they meet the firm’s requirements. Charges are made to clients per percentage of assets under management (AUM). To calculate charges and fees, we’ll take a look at an imaginary (but valid) example below:
For instance, a client invests $40 million in his portfolio being managed by CSX Corporations (an investment firm which he picked for managing a part of his investments), and the investment manager charges 2% of AUM as annual fees. In this case, the client will be expected to pay up to $800,000 to the investment manager at the end of the year, regardless of the performance of his portfolio. In a report provided by Willis Towers Watson, as of 2016, the top four investment firms based on their AUM values were BlackRock Inc. which was valued at $5.1 trillion, Vanguard Group which was valued at $4 trillion, State Street Global at $2.5 trillion, and Fidelity Investments which held up to $2.1 trillion.
Different Types of Investment Managers
There are different types of investment managers and it is very important that investors take note of each of them as they have different approaches to portfolio management. We have certified financial analysts who develop different detailed and carefully thought out plans for engaging in the market. These experts make plans for investors with regards to income, expenses and future cash needs, as well as help them analyze different details before creating an investment portfolio. We also have financial advisors, who in most cases are stockbrokers or investment links in any market which they are involved in. Lastly, we have portfolio managers whose jobs are to manage a client’s portfolio and investor’s capital to maximize profit and minimize losses.
Things You Should Look at When Choosing An Investment Manager
The needs of several investors differ based on what stage they are in their financial planning process. For an investor who is just planning to start investing, it is irrational to demand an investment manager unless the party wishes to invest a large sum. In this case, the individual might choose to stick to a certified financial planner who will help him or her plot out a portfolio plan that will be beneficial in the long run. For a person who wishes to invest his or her money in securities, a portfolio manager would be a better option.
Track record is a necessity in the financial world, and it is very important for investors to make research before picking an investment manager. An investment manager who has had a lot of previous complaints might spell bad news for an investor, so it’d be advisable to keep off such managers if the complaints are justifiable. Also, having knowledge of the manager’s investment strategy is a must, as it allows you to decide if you’re comfortable with what he or she provides. For instance, some clients would prefer sticking to low-risk investments with just 4% annual profits, while others are more profit-inclined and would look for investments of over 40% on an annual basis regardless of the level of risk. Each manager outlines their investment strategy on their platform, and in cases where they don’t, a simple request will do the trick.
Also, you should look at communications, as you won’t want to invest with someone who is rarely available for a quick chat or discussion. An investment manager should always be on deck and available to cater to your needs. Also, investment managers should be available to customize clients’ portfolios on short notices.
Performance and Fees
Investors should make it necessary to take a look at their investment manager’s performance at least for a five-year period. This way, they can evaluate how their portfolio is performing as well as have knowledge about the strength and weaknesses of the managers with regards to the markets where their investments are tied in. It is also essential for investors to compare their manager’s performance with that of competitors and peers to take note of their deviation from standard and thus manage their risks effectively. In some cases, investors can find information about their managers online, especially from sites like US News, which provide detailed rankings of all mutual funds in the United States. In some cases, most experts believe that investors should have their salary dependent on the performance of the portfolio that they’re managing as well as the annual returns which they record. However, others argue that this option would be harmful to investors, as managers will eventually increase their risks in an attempt to gain more money from the market.
Investors should also take a look at the fees which they have to pay on an annual basis with regards to what other investors are paying, or what other investment managers are charging. In most cases, managers who charge higher fees often outperform those who charge lower fees. Thus, it is crucial for investors to make excess research before investing with a manager that charges low service fees. Fees charged by managers mostly include; performance fees, custody fees, management fees, as well as commission.
- Investment managers are individuals or entities who handle the task of investing and maintaining portfolios on behalf of clients.
- There are different types of investment managers and the choice of a client is dependent on what or how much he or she is ready to invest.
An Illustration of the Operations of an Investment Manager
Jane and Jackson are both young adults, and they wish to start investing at the age of 25. Although they are looking to invest in securities they have but a little savings, as well as other expenses which they have to cover before the month runs out. After thinking for a while, they were unable to conclude if their savings is enough to cover the cost of investing in different securities. In this case, they decide to consult a Certified Financial Planner to help them map out their finances and decide what options they have on their limited income. The Certified Financial Planner in this case provides viable advice to both Jane and Jackson, including telling them to put some amount away on behalf of their children, so as not to run into debt in the future.