An investment manager is a person or organization that makes investments in portfolios of securities on behalf of clients in accordance with the investment objectives and parameters defined by the client. An investment manager may be responsible for all activities associated with the management of client portfolios, from buying and selling securities on a day-to-day basis to portfolio monitoring, transaction settlement, performance measurement and regulatory and client reporting.
Investment managers can range in size from one- or two-person offices to large multi-disciplinary firms with offices in several countries. Fees charged to clients by investment managers are typically based on a percentage of client assets under management (AUM). For example, an individual with a $5 million portfolio that is being handled by an investment manager who charges 1.5% annually would pay $75,000 in fees. According to Willis Towers Watson, as of 2016, the four largest investment management companies in the word based on AUM were BlackRock Inc. at $5.1 trillion, The Vanguard Group at $4 trillion, State Street Global Advisers at $2.5 trillion and Fidelity Investments at $2.1 trillion.
Investors must have an understanding of the various types of investment managers. Certified financial planners (CFPs) typically develop a holistic financial plan for investors that takes information such as income, expenses and future cash needs into consideration when planning a portfolio. A financial advisor (FA), however, is often a stockbroker. Portfolio managers (PM) directly invest investors’ capital to achieve positive investment returns.
Investors must determine what type of investment manager they require. This is likely to depend on what stage they have reached in the financial planning process. A background check of the investment managers’ professional regulatory qualifications will reveal any previous complaints and ensure that the manager has the necessary skills and experience required. An investment manager should be easily contactable and take the specific needs of the client into consideration. As financial needs are continually changing, investors must feel comfortable reaching out to their investment manager at short notice so that the service can be customized.
The investment managers’ performance should be reviewed and evaluated. It is prudent for investors to review at least five years of investment returns to determine the investment managers’ performance in various market environments. Fee structures should be considered when considering investment managers. Investment managers with higher fees often outperform those that have a lower fee structure, and caution should be exercised if an investment manager has an excessively low fee structure. Investment managers' fees and expenses typically include management fees, performance fees, custody fees and commissions.