If you are starting out in the world of investing, you might wonder if it makes sense to get an investment manager. Investment managers help your money grow, so you might wonder what harm it can do to have one on your side.
Well, the truth is investment managers are not for everyone. If that was the case, everyone would have one!
Read on to find out more about investment managers and whether they are right for you.
What Does an Investment Manager Do?
To say an investment manager helps grow your money gives you an incomplete view of what an investment manager actually does.
Investment managers makes investments in portfolios of securities on behalf of their clients within the parameters the client has defined. He may handle any and all of the activities associated with the management of the portfolio including buying and selling of securities, portfolio monitoring, transaction settlement, performance measurement and client reporting.
Investment Manager Vs. Asset Manager Vs. Investment Advisor
When considering financial experts that can help make your money grow, there are a few types to choose from. The first is an investment manager who works with stocks and other investments to make their client’s money grow.
An asset manager is another type of financial expert that can increase wealth. Asset managers typically work with wealthy individuals who are ready to make bigger investments. They may concentrate on a specific type of investment such as real estate investments and they will develop a long-term plan to make sure their clients investments increase in value.
You may also choose to seek out the help of an investment advisor. Defining the difference between an investment manager and an investment advisor is as simple as defining the difference between any other type of manager and advisor. That is to say, an advisor provides their clients with advice but they don’t actually have the authority to move money around.
Managers, on the other hand, may move their clients’ money around as long as it is within the parameters as defined by the client in advance.
What Kind of Fees Does an Investment Manager Charge?
An investment manager helps you make wise decisions with your money and this service comes at a cost. Fee structures can vary depending on the management company you use and the type of service they offer.
In general, fees range from .1% to 2% and this amount varies according to the strategies used. For example, if there is more work needed to yield a high turnover, fees will be higher. Passive investments are easier to manage and therefore, will require a lower fee.
Flat Fees: Investment managers will use a variety of fee structures for compensation. The flat fee is the easiest fee structure to understand. This means the manger will charge a single rate no matter what asset or investment selection you make.
Flat fees may be higher for clients that have more money invested. For example, if your manager is managing $1 million dollars of your money, he may charge a 1.5% fee while he might charge a 1.25% fee for clients who have $5 to $10 million dollars invested. This is because he knows he can make more money with higher investments over all.
Tiered Management Fees: Under a tiered fee structure, different asset levels are assigned different fees. In using this structure, clients will pay the same rate at the deposit level no matter how big or small the account may be. For example, they may charge 1.75% for the first $250,000 they invest, 1.5% on the next $750,000, 1.25% on the next million and so on.
Fees Assessed by Asset Class: Using this fee structure, clients will pay a fee based on the assets in their account. They may pay little to no fees on a cash reserve since investors tend to sit on them until they are ready to execute their strategy.
On the other hand, a manager may charge 1.5% on invested equity and .75% on fixed income security such as bonds. This can be beneficial to clients that are building up cash reserves.
Combination: Some investors may end up paying a combination of flat fees and annual management fees. For example, they may have an annual base fee as well as other investment fees. If this is the case, investors must keep track of what they owe to ensure they are charged fairly.
Wrap Fees: In some instances, financial managers consolidate a client’s fees into a wrap fee. This fee may cover the management of retirement and non-retirement accounts, financial advice and planning services, brokerage services and fees for mutual funds or ETF’s.
In general, wrap fees will be 1-3% of the assets being managed. In some cases, clients will pay a lower percentage but may pay more for trading fees and commissions.
What Qualities Make a Good Investment Manager?
If you are looking for an investment manager, here are some qualities to look for.
- Competitive Edge: An investment manager who has the desire to be the best will do all he can to make sure your money is working for you.
- Know Their Strengths: Most investments managers have skills that make them better at managing specific types of investments. Finding a manger with expertise in your investments will be ideal.
- A Team of Research Analysts: Skilled research analysts will look into trends to make sure managers are making the best possible financial moves.
- Looks Into Various Options: Although an expert manager will have tried and true investing methods he knows to be effective, the best managers will be open to exploring new ideas and alternative avenues.
- Can Take Advantage of a Weak Stock: The right manager can even make a weak stock work for them. By reacting properly, he can make a loss into a gain.
- Good Communication: A manager must have a team that will communicate with clients to explain what their money is doing and make sure everyone is on the same page.
- Takes Risks: Investment managers might not always play it safe but they will be smart enough to take risks that will benefit their clients in the long run.
What Questions Should I Ask an Investment Managers Before I Hire Them?
Before hiring an investment manager, it’s a good idea to interview him to make sure they have what it takes to handle your money wisely. Here are some questions you might include.
What are your credentials? Financial managers should have a bachelor’s and master’s degree in a relevant field such as business, economics or accounting. They should also be licensed with the Financial Industry Regulatory Authority (FINRA). They may also have additional certification to work in their field. In addition, they should have hands-on experience with the investments they manage.
What are your rates and how do you get paid? Obviously, you want your financial manager to be affordable. However, the cheapest manager may not always be the best manager and this is something to consider when making a hiring decision.
What is Your Investment Philosophy? Here, you want to find out their approach to investing and the types of strategies they use. You want to find a manager who is on your financial wavelength but also has something to offer.
How Do You Choose Investments? A smart investor will choose a wide range of investments so as not to put all your eggs in one basket. He will also take your personal needs into account to find investments that are suited to your age, the amount of money you are looking to invest and what your financial goals are.
What Benchmarks Do You Use? Benchmarks are standards that measure how well your investments are doing. Managers should check on these periodically to determine if changes need to be made. The benchmarks they use should be diverse and they should be suited to your financial needs.
Does it Make Sense for a Beginner to Use an Investment Manager?
Now that we know the ins and outs of investment management, let’s go back to the initial question and determine whether managers are right for beginners.
In general, beginners will be better off with a financial advisor instead of a financial manager. That way they can learn the ins and outs of their finances before moving forward.
However, the need for a manager can vary depending on how much money you are investing, how complicated your finances are and whether you require ongoing financial maintenance. In general, beginners will not find themselves in these situations, but you never know.
The bottom line… Investment managers can help your money grow, but they are not right for everyone.