Advisory Management

Advisory management refers to the provision of professional, personalized investment guidance. Individuals, an independent team, or a group within a private bank, investment management firm or specialist advisory boutique can carry out advisory management.

Advisory management services allow private individuals to consult with investment professionals before making changes to their portfolios. Advisory management professionals have expertise in one or more investment areas and provide guidance that is tailored to an individual's specific situation.

Investment advisors who work for advisory management groups will assess a client's time horizon, performance objectives and risk tolerance to determine which asset classes will be the most suitable investments. They will also provide guidance in the areas of asset allocation and portfolio rebalancing, and they will monitor investment performance and often execute orders.

Asset allocation is the practice of balancing risk and reward within a portfolio, according to an individual's goals or an institution’s policy. Managers will distribute the portfolio’s funds among three main asset classes: equities, fixed-income, and cash and equivalents, along with alternative investments, such as private equity and derivatives.

Because each asset class offers varying levels of risk and return, each will behave differently over time. Investors may use different asset allocations for different objectives. For example, someone who is saving for a year of travel in the near-term might invest his savings in a conservative mix of cash, certificates of deposit (CDs), and short-term bonds. Another individual saving for a down payment on an expensive home (at least a decade away) could diversify into more stocks since she has more time to ride out the market's short-term fluctuations.

Portfolio rebalancing safeguards an investor from undesirable risks and ensures that the portfolio’s exposure remains within the manager's area of expertise.

Advisory management services allow individuals to retain full control over their portfolios and make their own investment decisions. The investment advisor's role is primarily to offer an informed opinion.

In contrast, in discretionary investment management, a professional wealth manager takes more control of investment decisions. For the client, the discretionary approach is more hands-off, suitable for those who may not have the experience or time to actively manage their own portfolios. While advisory managers will always spend time understanding their clients’ goals and assets, this is often not as thorough a process as with discretionary managers.

With advisory services, a wealth manager will consult with his or her clients and provide advice, but the client makes the ultimate buy-and-sell decisions.