What Does an Investment Manager Do?
When you are just getting started with an investment management company, it can be overwhelming to understand all the ins and outs, the fees, and what exactly your investment manager does. When you think about your daily life, from filling your gas tank to picking up groceries, there is a cost to doing business. Investment management is no different, and the fees associated with it can add up if don’t know what to look for and aren’t paying attention. Let’s take a look at typical investment fees and then find out what an investment manager does
Investment fees are not all bad. They cover some important costs to help ensure that your investments are managed well. You want to make sure you’re getting good value from your investments without letting excessive fees cut into your returns.
You should never invest in anything until you understand how it works. And that includes investment fees. Your investment management company should clearly outline any fees associated with services and answer any questions you have about where the money your spending is going.
The average fee for a professional financial advisor’s services is 1.02% of assets under management annually for an account of one million dollars (the industry average fee is 0.95% and decreases depending on the size of your account).
There are several types of investment fees. Let’s review several of the most common fees you’ll come across when you start investing.
Loads (sales commissions)
If you are putting money into a Roth IRA, you’re actually buying shares in a mutual fund. The investment manager you’re buying those shares from will get a percentage of the money you invest, otherwise known as a load. When you see the word load, just think of a sales charge or a commission; there are three types of loads:
- Front-end load: When you invest in a mutual fund with a front-end load, you are charged when you put money into your retirement fund.
- Back-end load: Back-end loads are charged when you take money out of your retirement account.
- No-load: With a no-load fund, you aren’t hiring an investment manager, so you don’t have to pay commission. However, when the value of your fund goes up, the expenses—like an annual maintenance fee—will cut into your profits.
Advisor fees
When you invest in mutual funds, you’ll either pay your investment manager through a load (commission-only advisors), advisor fee (fee-only advisors) or some combination of both (fee-based advisors).
Expense ratios (annual fund operating expenses)
You’ve paid your investment manager, now you need to help cover the costs of running the mutual fund. That’s where the expense ratio comes in. Several fees that make up the expense ratio:
- Management fees: The stocks that make up your mutual fund aren’t there because of magic. Your investment management company makes sure that only the best investments make the cut. These fees help them manage the fund well.
- Distribution and service (12b-1) fees: These fees pay for the fund’s marketing costs—how much it takes to promote the fund.
- Administrative fees and operating costs: These cover things like salaries for the fund’s managers, record keeping and research. Some funds are more expensive to run than others which will impact how high or low the expense ratio is.
Now that you know more about the potential fees, what does an investment manager do?
Investment management companies are designed to clarify, simplify and maximize potential returns on clients’ investments. Various investments are used to help clients reach their unique goals. Often investment managers will focus on three key areas:
Create Income for Retirement
Most of us intend to save for the day we retire or just slow down a bit. Making sure there’s enough steady income to live on, where it comes from, how much is needed, and how it affects taxes are just a few of the things that need to be addressed. Your investment manager is well experienced in answering these questions and has helped create income for countless of retirees over the years. They will help plan and navigate your retirement journey.
Focus on Growth
You may not be ready for retirement and you want your investments to grow sufficiently so that when you are, the financial portions of the transition will be seamless. Determining the right balance between different investments is critical to long-term growth.
Consolidate and Coordinate
Very often people have so many varied investments that their portfolios become almost impossible to track, let alone manage. Investment managers help you coordinate and consolidate investments in ways that focus on increasing efficiency and reducing unnecessary complexity. They provide you with a detailed statement of all your investments that can be viewed on one page, helping them make better long-term decisions.
Investment companies will have a clear management process. Your investment manager will walk you through their particular process, but it typically involves these basics:
Review
The starting point for any portfolio is to review where you have your current investments. Your investment manager will try to keep it as simple and straightforward as possible, so you may be disappointed if you’re looking for an inch-thick book with a detailed analysis of your life history. You should expect a concise, easy-to-understand, one-page synopsis.
Plan
Your investment manager may determine some of what you currently have invested in is worth keeping, should be tweaked a bit, or maybe needs to go. They will address questions about taxes, growth, income requirements, and planning strategies. You will get a simple, easy-to-understand plan that addresses your specific needs, and the best ways to structure your investments to reach your goals.
Execute
No job is over until the paperwork is done. Your investment manager will assist in completing all the documentation necessary to execute your plans. They coordinate rollovers, work with you to complete applications, and monitor transfers of money. And, at completion, they provide you with copies of everything needed for your files. The investment management company staff is there to answer questions and provide assistance every step of the way.
Monitor
Managing investments is an ongoing process, and that includes the continuous monitoring, and assessing, of your investments as well as your investment managers performance. You should expect results, not just strategies. Your investment manager should encourage regular conversation to discuss performances of their investments, how they compare to market averages and your expectations, and if changes need to be made to the plan.
Amazing support for this article is provided by multiple sources including:
Concorde Financial Services
1120 E. Long Lake Rd, Ste. 250
Troy, MI 48085
Phone: 248-740-8500