What Is Investment Management?

What Investment Management Is

Investment management involves selecting securities, tracking their performance against defined objectives, and reallocating positions over time. Per guidance from Investor.gov on investing on your own, the first step in self-directed investing is creating a clear financial plan. That plan establishes how much capital you invest, how long you plan to invest, your specific goals, and your risk tolerance.

When you invest on your own, you accept sole responsibility for every investment decision. Investor.gov notes that self-directed investors execute trades through online investing platforms, direct investing programs, or dividend reinvestment plans.

In contrast, hiring an investment professional delegates ongoing portfolio oversight to an external manager. Investor.gov on investment advisers notes that an investment adviser is a firm or person paid to give advice about securities. Advisers generally provide ongoing recommendations about buying, selling, or holding securities.

What an Investment Manager Does

An investment manager provides ongoing portfolio oversight, performance reviews, and asset selection tailored to client goals. Under guidance published by Investor.gov on working with an investment professional, investment advisers are required to act in your best interest and cannot place their own interests ahead of yours.

Advisers may also offer optional financial planning services alongside ongoing portfolio monitoring. In discretionary accounts, an adviser makes trades and delegated decisions.

The scope of work provided by an adviser differs substantially from transaction-based brokerage services. As detailed on Investor.gov regarding the relationship summary (Form CRS), brokers are generally transactional professionals paid commissions or markups per transaction. Investment advisers focus on managing your portfolio over time. Dual-registered firms operate under both models, so you should understand when they act as a broker and when as an adviser.

What Assets Under Management Means for Account Fees

According to the Securities and Exchange Commission (SEC) investor bulletin on Form ADV, an adviser must disclose the amount of client assets managed in Form ADV Part 2A.

Investor.gov states that an adviser's fee is typically based on the value of all of the assets held in your account with the adviser. The Form CRS disclosure guidance explains that an asset-based fee can cost more than transaction-based fees. However, an asset-based fee aligns with continuous portfolio monitoring and delegated trading authority.

Form ADV Part 2A requires firms to disclose whether fees are negotiable, how billing occurs, and whether custodial or fund expenses apply. Our flat-fee vs AUM financial advisers comparison covers the cost math for these pricing models.

Decision Framework for Managing Investments or Hiring an Adviser

Deciding between self-directed investing and hiring an investment adviser depends on required services, total costs, and potential conflicts. Investor.gov lists six things to check about an adviser: services, limits on services, total cost, how the adviser is paid, conflicts and legal or disciplinary history. Our judgment is that self-directed investing works best when you want complete control and have a clear financial plan.

First decide whether you need ongoing monitoring. If you only require occasional guidance, paying an ongoing asset-based fee may be unnecessary. If you prefer continuous portfolio adjustments and delegated execution, hiring an adviser provides that service. See DIY vs hire and break-even to evaluate the tradeoff.

Steps to Check an Investment Adviser Before Hiring

Search both the person and the firm on the Investment Adviser Public Disclosure (IAPD) database through the Investor.gov professional search tool. Read the Form ADV Part 2A brochure fee items and the Form CRS relationship summary before you hire an adviser.

The SEC makes these brochures and relationship summaries accessible on the Investment Adviser Public Disclosure (IAPD) database. To learn more about navigating these filings, review our guide on how to read Form ADV and our overview of what is a registered investment advisor.

Situations Where Hiring an Adviser Does Not Fit

Hiring an investment manager is not necessary for every investor. Hiring an adviser does not fit if you want self-direction and accept responsibility for every decision. Investor.gov notes that ways to invest on your own include online investing, direct investing, and dividend reinvestment plans.

An asset-based fee is a fixed percentage of your balance, so it takes the same share of a small account as a large one. A flat subscription or minimum fee is the kind that can take a large share of a small balance: the SEC bulletin gives $3 a month on a $500 account, more than 7 percent a year.

Your approach changes if you only need infrequent trade execution rather than ongoing portfolio supervision. A registered broker paid per transaction offers a different model that avoids ongoing asset-based management fees. Investor.gov notes that how financial professionals make money creates specific conflicts of interest, so you must always verify fee structures before entering into an advisory agreement.

Our Takeaway on What Is Investment Management

Investor.gov says investing on your own starts with a financial plan (how much, for how long, your goals and your tolerance for risk) and that you are responsible for your decisions. Hire an adviser if you want ongoing advice and monitoring, or someone to place trades for you, and accept an asset-based fee. Form CRS says that fee may cost more than a transaction-based fee. This is our reading of those sources, not an SEC recommendation.

This decision changes if a flat or minimum fee would be a large share of your balance, or if your needs are met through single transactions executed by a broker. Write down your timeline and goals, read what a financial advisor does, and compare any adviser's Form CRS with the cost of investing on your own.

Frequently asked questions