Handling finances doesn’t come naturally to everyone. And the more complicated your financial situation, often the more daunting the prospect of managing it is. This is a key reason why you should consider hiring a professional — in this case, an investment manager.
If you are a high net-worth individual (HNWI), an investor, or you have bought stocks, you can benefit from the expertise and advice that an experienced investment manager can provide.
In this article, we’ll explore the topic of investment management. We’ll take a look at what an investment manager does and how they can help you expand and diversify your investment portfolio. We’ll also explain what to look for when choosing an investment manager so you find the right one for your needs. So, without further ado, let’s get stuck in!
What is an investment manager?
An investment manager is a company or individual that manages investment portfolios or collections of financial assets on behalf of clients. Their role is to implement short-term and long-term investment strategies in alignment with their client’s financial goals.
Investment managers use their experience and insight to build portfolios and make decisions about investments, from diversifying portfolios to buying and selling securities. They can also deal with more day-to-day aspects of money management, such as completing bank transfers. This said, how much involvement and control an investment manager has will differ depending on the client.
What is a fund manager?
Fund managers are responsible for implementing investment strategies for different types of funds, such as mutual funds and hedge funds. They can be in-house or work for a fund management company.
Although fund managers and investment managers have similar responsibilities, such as dealing with wealth management and implementing investment strategies, the job roles have different focuses. Fund managers solely work with funds. These are collective investments that are pooled together and intended for a specific purpose — such as insurance funds and pension funds. On the other hand, investment managers work on behalf of clients and in doing so, focus on managing bonds and assets.
Is it worth hiring an investment manager?
Whether you should hire an investment manager will greatly depend on your circumstances. If you’re a casual investor who is only investing a small amount of capital, the cost of hiring an investment manager may not be worth it, as you can do things like buying stocks online yourself. However, on the other hand, you may benefit from hiring one if any of the following apply:
- You are inexperienced in managing finances
- You have a large portfolio
- You want to diversify your portfolio
- You have complicated finances, e.g. you’ve inherited stocks
- You want to invest a large sum of money
But when it comes to money management, there’s no hard and fast rule about whether you should go to a professional. So, to further help you decide whether it’s worth hiring an investment manager, let’s run through the main benefits and potential disadvantages.
Pros and cons of investment management
We’ll start things off with the pros of hiring an investment manager. These include:
- Expertise: one of the biggest benefits of using an investment manager is the experience and expertise that they bring to the table. Investment managers who have successfully managed plenty of portfolios should be able to use their knowledge and skills to try to replicate the success — whether that’s for your personal financial assets or your company’s. They should be able to accurately assess your client profile and make educated decisions that align with your financial goals and attitude to risk.
- Implementing and monitoring investments: investment managers can act entirely on behalf of a client to execute and assess investments. Again, using their expertise, they should be able to decide on suitable investments that will provide maximum returns. They can then monitor and then adjust them when necessary, taking the pressure off you as well as saving you time.
- Access to exclusive investments: some investment managers have access to exclusive investment vehicles that are not readily available to the public. For example, stocks that have not yet been released in an initial public offering.
- Saving time and effort: managing investments requires not only expertise but also time and energy. Using an investment manager allows you to pass on this responsibility to a professional, meaning you can focus on other goals.
But of course, like most things, there are also some things to consider before jumping into hiring a professional to manage your financial assets. Here are some potential drawbacks of using an investment manager:
- Cost: there’s no denying that using investment management services can be a costly occupation — understandable as you’re paying for the experience and professional skills. But this isn’t always feasible, as it may mean profit margins aren’t worth outsourcing financial advice and management.
- Less control over finances: hiring an investment manager often means handing over control of your finances to another party. While you may be comfortable putting your trust in a professional, consider the risks fully before you hand over your portfolio.
- Risk: investments aren’t foolproof, and even the most experienced investment managers can be hit by market fluctuations. But at the end of the day, it will be your portfolio that suffers as a result of a loss. For this reason, it’s crucial that you do your research to find an experienced investment manager and are fully aware of the potential risks involved.
Can you manage your own investments?
In short, yes, you can manage your own investments. For those with experience in portfolio management, there may not be a need to hand things over to an investment manager. Or, if you’re only investing small amounts and you want to learn yourself, there are plenty of online resources and great books about the stock market that can guide you.
But, if you are new to investing or want to invest a significant amount, it is always advisable to hire an investment manager. With their experience and expertise, they will be able to reduce the risks of investing and help you achieve your financial goals.
How to choose an investment manager?
There are many types of investment management firms out there. For this reason, finding and choosing the right investment manager requires research. The aim is to find one who you trust and are comfortable having over the responsibility of your financial assets to.
With this in mind, here are the things to look at when choosing an investment manager:
- The investment management company and its employees: clients typically have a close relationship with their investment manager, so when choosing one to use, you want to ensure you can build this. Do your research on the firm and its colleagues before investing. It can help to head to company websites and check out the employee biographies of those on them.
- Number of clients: firms with a large number of clients generally have more experience in managing portfolios which is valuable to you as a client.
- Location: although there is the option for video calls, being able to go to your investment manager for in-person meetings is always preferable when investing.
- Assets under management (AUM): the number of AUM is used to determine how large an investment manager is. While you may prefer to go smaller, it’s worth remembering that, usually, larger investment managers have dedicated teams who specialise in different types of investments.
- Investment strategy and philosophy: these vary considerably between investment managers. Finding out how a company or individual approaches investing is important. The reason is that you want to ascertain whether their methods and style align with your preferences and end goals.
- Liquidity of assets: this is how quickly assets can be sold for cash. A good investment manager should be able to turn around a high percentage of a portfolio in less than ten days — although this will be longer for a particularly large portfolio.
- Track record: an investment manager’s past performance and success are not a guarantee of their future performance, but they are still worth looking at. From this, you can identify how they work and the effectiveness of their strategies and processes.
- Communication: your investment manager should provide you with regular reports and keep you up to date with how they are managing your portfolio. So, when choosing an investment manager, ensure you opt for one that has excellent communication skills.
- Cost of fees: before you invest, ensure you know how much it is going to cost. Check how much management fees will be and find out about any potential hidden costs that may crop up unexpectedly later down the line.
These factors should give you a good idea of the areas you should research and find out more about when hiring an investment manager. But, if you’re looking for a well-known investment management firm, here are some to check out:
- BlackRock: the world’s largest asset manager, BlackRock has over $9 trillion in assets under management.
- Legal & General: a leading British finance company dealing with all your daily financial needs from investment management to pensions and mortgages.
- The Vanguard Group: one of the world’s largest investment companies, Vanguard has around $7 trillion in assets under management. A US company that offers services to UK investors.
- Hargreaves Lansdown: British financial service offering services across areas such as investments, ISAs, and pensions.
Investment management is the process of managing financial assets and investments through the use of investment strategies. While this is something that you can do yourself, it is recommended you hire a professional. The reason is that investing can be risky, particularly if you’re seeking to invest a lot of money or you’re not experienced. So yes, you can learn how to do your own investments due diligence, but when it comes to money management, it often pays more to use an investment manager and make use of their skills and experience.
They will be able to assess your current investment portfolio and make new investments on your behalf. They should do this in alignment with your goals and attitude to risk.