What Is Investment Management?
Investment management is the process of hiring an individual to manage, allocate, and oversee an investment portfolio. Investment managing is done on multiple levels, with different outcomes for different investment intents.
It might sound like hiring someone to manage your investment portfolio is something only people of extreme wealth need, but anyone with investments should have a financial professional to help ensure you’re making the most out of your money. Regardless of how much money is in your portfolio, an investment manager can help you optimize every dollar by managing your holdings and trading them when the time is right. Learn more about what investment management entails.
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What Does an Investment Management Company Do?
An investment manager has three key tasks to keep in mind to ensure adequate investment management: assessing a client’s financial goals in relation to the amount they are willing to gamble with, being aware of the market, and creating investment strategies. Below, we break down the specifics that each task asks of an investment manager.
- Assessing financial goals: An investment manager needs to understand the client’s needs before they can proceed. They will ask how much a client has to invest, the kind of return they want, and when they’ll need access to those funds. They’ll also ask how much a client is comfortable with losing on their investment.
- Being aware of the market: There are a variety of investments available with new options being added every day. From cash deposits to government bonds and shares in new companies, investment managers need to be aware of all the possible ways a client could invest their funds, calculating the risks and returns of each.
- Creating investment strategies: Based on the client’s goals, an investment manager will formulate a plan and create a diverse portfolio to mitigate risk.
Investment Management vs. Investment Banking
Investment management is often misconstrued as investment banking. Both are responsible for handling money on behalf of investors. Investment managers are all about decisions and asset allocation. In other words, they’re responsible for coming up with the strategies that are going to get a client the return that they want, then directing those funds to the right investments on behalf of clients. By contrast, investment bankers are deal-makers. They work with consultants and analysts, often assisting large corporations with strategies to help raise their capital.
Who Uses Investment Management?
Although investment management is commonly associated with individuals who have higher wealth, investment managers deal with a variety of clients. Investment managers work with portfolios of all kinds to consolidate your investments and make it easier to create and assess an investment plan. Below are some different types of clients an investment manager might have.
- Inexperienced investors: They might not be confident in their investment decisions, so they request guidance from a professional.
- A busy individual or corporation: They might not have time to regularly assess their investment portfolio and reallocate assets, so they hire an investment manager to handle it for them.
- Someone dealing with complex financial issues: Inheritance, retirement or legacy planning, and tax strategies can be extremely confusing. Investment managers can make these strategies more clear and provide tangible advice to deal with these difficult financial matters.
Types of Investment Management Firms
There are four main types of investment management firms: large investment management firms, boutique firms, specialist firms, and investment banks. Below, we’ll break down each type and define what they are, what they do, and the kind of client who would typically utilize their services.
- Large investment firms manage assets that total trillions of dollars. One example of a large investment firm is The Vanguard Group.
- Boutique firms sell themselves based on the quality of their people, product or service. Capstone Partners is an example of a boutique investment management firm.
- Specialists focus on investments in a particular area like art or private equity. They’re often employed by other investment management firms but only deal with clients specific to their niche.
- Investment banks tend to have a multitude of large and well-developed asset management divisions. The most widely known investment bank is Goldman Sachs.
Hiring an Investment Manager
It is common to end up with a collection of investment accounts over the years, from IRAs to 401(k)s, brokerage accounts, and beyond. Certain individuals with a variety of accounts would benefit from an investment manager more than others. Most often, investment managers are helpful when dealing with complex tax strategies or retirement plans, but an investment manager can help in any stage of life.
If you have a lot of money, any investment manager will want to work with you. For those with a smaller amount in the bank, robo-advisors can help. These automated investment management services are easy to use and come at a low cost to first-time investors. Regardless of which investment management service you use, read reviews and inquire about their fiduciary responsibility before you start to work with them.
Investment managers can help you make the most out of every dollar in your portfolio. Find the firm that’s right for you by understanding how investment managers work and the many kinds of investment managers available to you.
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This post was updated December 3, 2019. It was originally published December 3, 2019.