What is Money Management
What is Investment Management?
Investment management refers to dealing with financial assets and other investments – not just buying and selling them. Management involves developing a short- or long-term strategy for acquiring and disposing of portfolio holdings. It can also include services, bank charges, budgeting, and taxes as well.
The term often refers to the management of property within an investment portfolio, trading it to achieve a specific investment objective. Investment management is also known as money management, portfolio management, or wealth management.
Fundamentals of Investment Management
Professional investment management aims to achieve certain investment objectives for the benefit of clients who take responsibility for overseeing their funds. These clients may be individual investors or institutional investors such as pension funds, retirement plans, governments, educational institutions, and insurance companies.
Investment management services include asset allocation, financial statement analysis, stock selection, monitoring of current investments, and portfolio strategy and execution. Investment management may also include financial planning and advisory services, not only overseeing the client's portfolio but coordinating it with other assets and life goals. Professional managers handle a variety of securities and financial assets, including bonds, stocks, commodities, and real estate. The manager may also manage real assets such as precious metals, commodities and artwork. Managers can help align investment to retirement matching and estate planning as well as asset allocation.
In corporate finance, investment management includes ensuring that a company's tangible and intangible assets are maintained, calculated, and well utilized.
According to an annual study by research and consulting firm Willis Towers Watson and financial newspaper Pensions & Investments, the investment management industry is growing. Based on the combined holdings of the top 500 investment managers, the global industry had approximately US$93.8 trillion in assets under management (AUM) in 2018. This figure was more than US$100 trillion by the end of 2019.
Main takeaways
Investment management refers to the handling of financial assets and other investments by specialists for clients
Investment managers' clients can be either individual or institutional investors.
Investment management includes strategizing and executing trades within a portfolio.
Investment management firms dealing with more than $25 million in assets must register with the SEC and accept fiduciary responsibility to clients.
Investment Management Company Management
Investment management business management involves many responsibilities. The company must appoint professional managers to handle, market, settle and report to clients. Other duties include conducting internal audits and researching individual assets – or asset classes and industrial sectors.
Apart from appointing marketers and training managers who direct the flow of investments, those who head investment management firms must ensure that they move within legislative and regulatory constraints, examine internal systems and controls, calculate cash flow and track recorded transactions and fund valuations correctly.
Generally, investment managers with at least $25 million in assets under management (AUM) or who advise investment firms offering mutual funds are required to be registered investment advisors (RIA). As registered advisors, they must register with the Securities and Exchange Commission (SEC) and state securities officers. It also means accepting their fiduciary duty to their customers. As a fiduciary, these consultants promise to act in the best interests of their clients or face criminal liability. Companies or consultants who manage assets of less than $25 million usually only register in their business status.
Investment managers are usually compensated through management fees, usually a percentage of the value of the portfolio held for the client. Management fees range from 0.35% to 2% per annum. Also, fees are usually on a tiered scale – the more assets a client owns, the lower the fees they can negotiate. The average administrative fee is around 1%.
Pros and Cons of Investment Management
Although the investment management industry may provide rewarding returns, there are also major problems that come with running such a company. The revenues of investment management firms are directly related to market behavior. This direct correlation means that the company's profits depend on market valuations. A significant drop in asset prices can cause a decrease in a company's revenue, especially if the price drop is significant compared to the company's ongoing and fixed operating costs. Also, clients may run out of patience during difficult times and bear markets, and even an above-average fund performance may not be able to sustain the client's portfolio.
Pros
Professional Analysis
Full-time diligence
Time capacity or outperform the market
Ability to protect the wallet in times of downtime
Cons
Big fees
Profits fluctuate with the market
Challenges from passively managed vehicles and automated advisors
Since the mid-2000s, the industry has also faced challenges from other exporters.
Increase Automated Advisors – Digital platforms that provide algorithm-driven automated asset investment and allocation strategies
Availability of exchange-traded funds, whose portfolios reflect those of the benchmark index
The last drawback is an example of passive management since few investment decisions have to be made by human fund managers. The first challenge is not using humans at all - unlike the programmer who writes the algorithm. As a result, both can charge much less fees than human fund managers can charge. However, according to some surveys, these low-cost alternatives often outperform effectively managed funds – both directly and in terms of overall return – mainly because there are no exorbitant fees that push them down.
The pressure caused by this dual competition is why investment management firms must hire talented and intelligent professionals. Although some clients look at the performance of individual investment managers, others examine the overall performance of the company. One of the key signs of an investment management firm's ability is not just how much money its clients make in good times – but how little they lose in the bad.
Real world example of investment management
The top 20 investment management firms control 43% of all global assets under management, according to the aforementioned Willis Towers Watson report — worth about $40.6 trillion. In the United States, the five leading companies include, in descending order:
Bank of America for Global Wealth Management and Investments which, as of 2008, includes Merrill Lynch ($1.25 trillion in assets under management)
Morgan Stanley Wealth Management ($1.1 trillion in assets under management)
JPMorgan Private Bank ($677 billion in assets under management)
UBS Wealth Management ($579 billion in assets under management)
Wells Fargo ($564 billion in assets under management)