Hiring someone to manage your investment portfolio may sound like a service only the wealthy need — or can afford. But investment management is about making the most of your money: No matter how much you have in your portfolio, it’s important to ensure every dollar is optimized.
Understanding investment management
Investment management, portfolio management and asset management are all terms that refer to services that provide oversight of a client’s investments.
An investment manager is a person or company that manages an investment portfolio on behalf of a client. They come up with an investment strategy to meet a client’s goals, then use that strategy to decide how to divide the client’s portfolio among stocks, bonds and other investments. The manager buys and sells those investments on behalf of the client, and monitors the portfolio’s performance.
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Some investment managers are also financial planners, providing holistic financial advice on topics like cash-flow management, taxes, insurance and estate planning. Others work with high-net-worth clients to address their financial planning and investment management needs, as well as coordinate the services of other professionals, such as lawyers and accountants. This is often referred to as wealth management.
How do investment management services work?
Most investment management firms require you to set up an investment account with them or at a brokerage they use. If you have existing accounts at other firms — such as IRAs, taxable brokerage accounts or retirement plan assets still in a former employer’s plan — they will help you transfer your money.
A portfolio manager makes investing decisions based on a client’s savings goals, time frame and tolerance for risk.
The manager’s investment decisions are based on a variety of factors, starting with your savings goals (retirement, education, a large purchase) and time frame. You’ll also answer questions to help them assess your risk tolerance, or your ability to endure swings in investment returns and stock market fluctuations. Market conditions, historical performance, tax efficiency and investment fees also inform the manager’s investing strategy.
When to hire an investment manager
It’s common to end up with a collection of investment accounts — a few IRAs, a couple of old 401(k)s from former jobs, that brokerage account you opened after you saw a Warren Buffett documentary. Portfolio management can streamline your financial life by consolidating accounts from different firms under one roof, making it easier to execute a cohesive investment plan.
But even if your portfolio is held within one account, investment management is helpful if:
- You’re not confident about making investing decisions on your own (or want a second opinion).
- You want someone else to keep tabs on your portfolio and rebalance assets when the mix drifts from the original formula.
- You’re dealing with complex issues, such as an inheritance, retirement-income planning, tax strategies or legacy planning.
- You want an advisor to help manage other financial needs, like cash-flow planning, insurance or debt management, in addition to portfolio management.
How to find an investment management service
Whether you want investment management only or someone to advise you on every aspect of your financial life, there’s a service for you. We outline the typical costs associated with several types of investment management services below.
Investment portfolio management services
If you have a healthy investment portfolio — we’re talking about amounts well north of $1 million — any portfolio manager will be happy to take your call. Boutique portfolio management firms often specialize in working with particular types of affluent clients (ultra-high-net worth individuals, business owners, professional athletes) or have expertise in managing niche investments like private equity or art. Portfolio management companies set high minimums because they serve a small pool of clients, guiding them through complex investment management issues, like taxes (minimizing them) and trusts (setting up and managing them). Customers typically pay 1% or more of the amount of money under management up to a certain level, then less on amounts that exceed certain thresholds.
» Learn more about investment fees
For those of us who haven’t yet been signed to the majors, there are robo-advisors. These automated portfolio management services are a simple, low-cost solution for all types of investors. A sophisticated computer algorithm determines the ideal investment mix of stocks, bonds and cash based on information you provide about your investment goals and risk tolerance.
Robo-advisors are less expensive than working with a traditional investment manager, and many have low or no account minimums, making them well-suited for beginner investors. (Read more on robo advisors to see if one is right for you.)
Cost: Robo-advisors typically charge 0.25% to 0.50% of the assets the service manages for you.
Here are some of NerdWallet’s picks for top robo-advisors:
Investment management plus financial planning
Online financial planning services
Your investments are only one part of your financial life. As life goes on, money management grows more complex. Online financial planning services provide guidance that extends beyond investment management. These services vary in the depth of advice they offer: Some provide customers access to fairly sophisticated DIY planning tools supported by a team of financial advisors on-call (via phone, chat or email) to answer questions and provide more personal guidance.
An online-only provider offers service that closely mimics what you’d get from a traditional financial advisory firm.
There are also online-only providers that offer a level of service that closely mimics what you’d get from a traditional brick-and-mortar-based financial advisory firm. In addition to low-cost portfolio management, customers are paired with a dedicated human financial advisor who develops a financial plan and helps them execute the advice.
Cost: A service that offers you access to a team of financial advisors will typically cost less, with fees that start at 0.30% of assets under management. A more holistic financial planning service that provides a dedicated certified financial planner will charge either a flat annual fee (generally starting around $400 and going up to as much as $5,000, depending on the service and the level of advice you need). Some services also charge for financial planning and investment management separately.
Traditional financial advisors
Traditional financial advisors provide portfolio management coupled with financial planning services. Clients meet face-to-face with a dedicated financial planner to discuss their overall financial picture and inventory assets and liabilities. You can hire a financial advisor to craft an overall financial plan or one to achieve specific goals, such as investing for higher education. The office may outsource some of the tasks (and some even use robo-advisors to manage customer investment accounts).
Cost: Advisors use varying fee structures, but most common is an assets under management, or AUM, fee — typically 1%; more for small accounts and less for larger ones. Other advisors earn a commission from the investments they use in portfolios, or charge clients by the hour or an annual retainer. Some advisors charge a combination of several fees.
If you decide to use a traditional financial advisory firm, we recommend going with a fee-only one to lessen your exposure to conflicts of interest. (Read more about the difference between fee-only and fee-based planners.)