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. An investment manager can help you do that.
Investment management definition
Investment management, portfolio management and asset management are all terms that refer to services that provide oversight of a client’s investments. Investment management companies not only buy and sell investments on behalf of a client, but they also manage the client’s investment portfolio overall. That includes ensuring the portfolio continues to align with the client’s goals, risk tolerance and financial priorities.
What does an investment manager do?
An investment manager is a person or company that manages an investment portfolio on behalf of a client. Investment managers 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 for the client as needed, and monitors the portfolio’s overall 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. Investment 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 investments are 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 management services
If you have a healthy investment portfolio — we’re talking about amounts well north of $1 million — any investment manager will be happy to take your call. Boutique portfolio management firms set high minimums and typically charge around 1% of the money under management.
For those of us who haven’t yet been signed to the majors, there are robo-advisors. These automated investment 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 includes but extends beyond investment management.
An online-only provider offers service that closely mimics what you’d get from a traditional financial advisory firm.
Some services offer you access to a team of financial advisors; others 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 investment 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).
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: We recommend a fee-only financial advisor, which means they don’t earn commissions from the investments they use, which could introduce a conflict of interest. The cost of a financial advisor varies, but most charge an assets under management, or AUM, fee — typically 1%; more for small accounts and less for larger ones. Other advisors charge clients by the hour or an annual retainer.