What Is Investment Management — And Do You Really Need It? 

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Investment management refers to the professional handling of an investment portfolio. Individuals and institutional investors use investment management to grow wealth, protect assets and plan for the future. In this article, you’ll learn the services and benefits offered by investment management, when you should consider it, and how to choose a provider.

Investment Management Definition

Investment management is the practice of managing assets within an investment portfolio to achieve a specific goal. The term is also referred to as portfolio management, money management or wealth management. It can also include any of the following:

• Budgeting, banking and tax services
• Coming up with an investment strategy for the buying and selling of portfolio holdings
• Managing investments to align with clients’ goals and risk tolerance
• Monitoring portfolio performance

Investment management can be for individuals, businesses, or institutions.

What Does an Investment Manager Do?

Investment managers are typically charged with managing the investments of a company or an individual. Managing the assets usually means that the investment manager selects what to invest in and decides when to invest or withdraw money.

Common types of assets investment managers handle:  

• Stocks  
• Bonds  
• Mutual funds  
• Commodities  
• Real estate

The job of an investment manager is to grow wealth for both individuals or companies. They do this by devising an investment strategy to meet the clients’ goals. Then they use that strategy to decide the type of investments to add to their portfolio. Common responsibilities of an investment manager of firm include:

• Assessing risk tolerance and financial goals
• Building a diversified portfolio
• Rebalancing and managing assets over time
• Providing performance reports and guidance

While there isn’t a specific “investment management degree,” most investment managers earn degrees in finance and/or economics and then pursue additional certifications, such as the well-regarded Certified Financial Planner® designation. 

Some investment management firms offer robo-advisory services, either independently or in conjunction with human advisors. A robo-advisor is an online, automated service. It provides the ideal investment mix of securities based on your current financial situation, investment goals and risk tolerance.

Robo-advisors are less expensive than traditional investment managers. They also have low account minimums, making them suitable for new investors.

Investment Management vs. Financial Planning

Investment management is just one piece of the larger financial planning puzzle. Although planning wealth-building strategies and selecting specific investments is important, comprehensive financial planning incorporates your entire financial situation.

Financial planning is a comprehensive strategy that includes retirement planning, budgeting, tax minimization, debt elimination, estate planning, and more. Investment management is a more specific strategy focused on buying and selling securities to help meet your investment goals.

Types of Investment Management Services

Although all investment management falls under the umbrella of security selection and allocation, there are various types.

• Personal/retail investment management: Investment services tailored for individual clients
• Institutional investment management: Investment services for foundations, corporations, or other non-individual entities
• Discretionary services: Managers make investment decisions on the client’s behalf
• Non-discretionary services: Clients retain control over investment decisions in their portfolios
• Active management: Managers hand-select individual securities to try to outperform the market
• Passive management: Portfolios are designed to track a specific index, such as the S&P 500, with minimal trading

When Should You Consider Investment Management?

If you feel that your portfolio is getting too much for you to manage on your own, it may be time to hire an investment manager. They can help you make more informed investing decisions. Even if you’re feeling good and things are going well, hiring a professional only makes sense as part of a long-term investment strategy.

These signs may also suggest it’s time to bring in a professional:

• You’re short on time. An investment manager can dedicate time to watching the markets and reviewing opportunities while you focus on everything else.
• You’re unsure about making investment decisions. A manager can help ensure your investments stay on track and prevent costly mistakes in the stock market.
• You have a large amount to invest. Managing it alone can be time-consuming, even with experience. A manager can help with allocation, reduce fees, and optimize long-term growth.
• You need broader financial support. An investment manager can also assist with financial planning, debt management, retirement strategies, insurance, and more.

Benefits of Investment Management

Professional investment management offers a number of benefits. These are some of the most prominent:

• Professional guidance and expertise
• Diversification and risk management
• Monitoring and rebalancing
• Elimination of emotional decision-making
• Saving of investors’ time
• Alignment of investments with long-term goals

For investors who don’t need these types of services, professional investment management may not be for them. But for many potential clients, there are numerous benefits offered by professional management. It’s up to investors themselves to determine if the management services are worth the cost.

How To Choose an Investment Manager

You can find investment managers at banks, robo-advisor companies, brokerage firms, and stand-alone investment management companies. Regardless of which type of manager you choose, you’ll want to find one that provides quality investment advice.

However, there’s a lot more that goes into the decision. Here are some of the factors you should consider.

Credentials

A good place to start is to look for investment managers that have credentials. At a minimum, you’ll want to make sure a manager has Financial Industry Regulatory Authority licenses, such as the Series 7 and 66. Beyond that, some of the most common industry designations you’ll want to look for include the following:  

• Chartered Financial Consultant (ChFC) 
• Chartered Financial Analyst (CFA) 
• Certified Financial Planner (CFP) 

Track Record and Transparency

If you’re looking for someone to manage your investments, you’ll want to find someone with a solid historical track record of investment performance. If a manager is not transparent about their past performance, it could be a red flag.

Fiduciary Duty

Fiduciary managers must by law act in their clients’ best interest. Perhaps surprisingly, not all managers hold themselves out as fiduciaries, meaning they only have an obligation to make suitable recommendations. In nearly all cases, it’s best to choose a manager who holds to the fiduciary standard.

Fee Structure

Before you hire an investment manager, it’s important to know how they get paid. This can not only highlight potential conflicts of interest but also give you an idea of just how much their services will cost. There are three primary ways in which investment managers get paid:

• Fee-based. In most cases, investment managers will charge an annual fee based on your assets under management. If you have a $100,000 portfolio and your manager charges a 1% annual fee, for example, you’ll pay $1,000 annually. Robo-advisors typically charge 0.25% annually for their services.
• Commission-based. Some consultants work on commission for the products they sell to customers.
• Combination of fees and commissions. Some consultants prefer getting paid through a variety of fees and commissions.

At the end of the day, it’s important to find an investment manager that you are comfortable working with. Asking the right questions about fees, strategies and historical performance can be a way to uncover red flags.

Investment Management Costs

Professional investment management costs money. The most common fee structures are annual fees, flat fees and hourly rates. Here’s how they work:

• Assets under management (AUM) fee: A fee based on the size of the assets managed, typically in the 1% to 1.5% range — for example, on a $100,000 portfolio, you could expect to pay between $1,000 and $1,500 annually
• Flat fee: An upfront fee for services, like a retainer, not as commonly used for investment management
• Hourly rates: Hourly rates are typically charged only for specific services, such as a portfolio review or analysis.

Different managers may offer different services in exchange for their fees. Some may only provide general investment management. Others may add portfolio monitoring and rebalancing, tax-loss harvesting, or strict security selection.

A key consideration when evaluating investment management fees is that they can act as a drag on returns. If you earn 10% on your portfolio but pay a 1% management fee, your actual net return is just 9%. Over time, this effect compounds, making fee minimization a critical concern.

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