Investment Manager

An investment manager is a person or organization that makes investments in portfolios of securities on behalf of clients under the investment objectives and parameters the client has defined. An investment manager may handle all activities associated with the management of client portfolios, from day-to-day buying and selling of securities to portfolio monitoring, transaction settlement, performance measurement, and regulatory and client reporting.

Investment managers can range in size from one- or two-person offices to large multi-disciplinary firms with offices in several countries. Investment managers typically base the fees they charge to clients on a percentage of client assets under management.

For example, an individual with a $5 million portfolio that is being handled by an investment manager who charges 1.5 percent annually would pay $75,000 in fees per year. According to Willis Towers Watson, as of 2016, the four largest investment management companies in the world based on AUM were BlackRock Inc. at $5.1 trillion, The Vanguard Group at $4 trillion, State Street Global Advisers at $2.5 trillion and Fidelity Investments at $2.1 trillion.

Investors must understand the various types of investment managers. Certified financial planners typically develop a holistic financial plan for investors that takes information such as income, expenses and future cash needs into consideration when planning a portfolio. A financial advisor, however, is often a stockbroker. Portfolio managers directly invest investors’ capital to achieve positive investment returns.

Investors must determine what type of investment manager they require. This is likely to depend on what stage they have reached in the financial-planning process. For example, an investor who is just starting off on her savings journey may not need the services of a portfolio manager. Instead she would be better off with a Certified Financial Planner (CFP), who can teach her the basics of retirement planning. In contrast, an investor who has income left over after savings and wishes to invest it in securities is better off with a portfolio manager.

A background check of the investment managers’ professional regulatory qualifications will reveal any previous complaints and ensure the manager has the required skills and experience. Most investment managers and funds outline their investing philosophy on their site or brochures. Investors should determine whether that philosophy (and risk level) is appropriate to their goals.

An investment manager should be easily contactable and take the specific needs of the client into consideration. As financial needs are continually changing, investors must feel comfortable reaching out to their investment manager at short notice to customize service.

An investor should review and evaluate an investment managers’ performance. It is prudent for investors to review at least five years of investment returns to determine the investment managers’ performance in various market environments. It is also helpful to consider their performance relative to peers to determine their deviation from the standard. Some sites, such as US News mutual fund rankings, provide this information on their sites. Some experts are of the opinion that an investment manager should have skin the game, meaning that her salary should be tied to her performance and returns. But that may not always be the optimal solution as it could amplify the amount of risk that a manager takes on to achieve returns in line with benchmarks.

Investors should consider fee structures when comparing investment managers. Investment manager fees are a function of the investment asset class. Investment managers with higher fees often outperform those that have a lower fee structure, and investors should use caution if an investment manager has an excessively low fee structure. Investment managers' fees and expenses typically include management fees, performance fees, custody fees and commissions.

Sheena and Greg are both 30 years old and are expecting their first child. They have some savings stacked away but also have other commitments, such as mortgage payments on their new home. They are not sure whether the available cash is enough to help them plan for the new arrival. They consult a Certified Financial Professional (CFP) to help plan out their finances. The CFP suggests various options, such as putting some cash away in an education fund, to help them plan for the child.