How do investment management services work?

Most investment management firms require you to set up an investment account with them or at a brokerage they use. If you have existing accounts at other firms — such as IRAs, taxable brokerage accounts or retirement plan assets still in a former employer’s plan — they will help you transfer your money.

The manager’s investment decisions are based on a variety of factors, starting with your savings goals (retirement, education, a large purchase) and time frame. You’ll also answer questions to help them assess your risk tolerance, or your ability to endure swings in investment returns and stock market fluctuations. Market conditions, historical performance, tax efficiency and investment fees also inform the manager’s investing strategy.

When to hire an investment manager

It’s common to end up with a collection of investment accounts — a few IRAs, a couple of old 401(k)s from former jobs, that brokerage account you opened after you saw a Warren Buffett documentary. Investment management can streamline your financial life by consolidating accounts from different firms under one roof, making it easier to execute a cohesive investment plan.

But even if your investments are held within one account, investment management is helpful if:

• You’re not confident about making investing decisions on your own (or want a second opinion).
• You want someone else to keep tabs on your portfolio and rebalance assets when the mix drifts from the original formula.
• You’re dealing with complex issues, such as an inheritance, retirement-income planning, tax strategies or legacy planning.
• You want an advisor to help manage other financial needs, like cash-flow planning, insurance or debt management, in addition to portfolio management.
• You’ve had a major life event (such as getting married or having a child) or a significant change in income.

How to find an investment management service

Whether you want investment management only or someone to advise you on every aspect of your financial life, there’s a service for you. We outline the typical costs associated with several types of investment management services below.

Robo-advisors

Robo-advisors are a simple, low-cost solution for all types of investors. A sophisticated computer algorithm determines the ideal investment mix of stocks, bonds and cash based on information you provide about your investment goals and risk tolerance.

Robo-advisors are less expensive than working with a traditional investment manager, and many have low or no account minimums, making them well-suited for beginner investors.

Cost: Robo-advisors typically charge 0.25% to 0.50% of the assets the service manages for you.

Online financial planning services

Your investments are only one part of your financial life. As life goes on, money management grows more complex. Online financial planning services provide guidance that includes investment management but extends into other services as well.

An online-only provider offers service that closely mimics what you’d get from a traditional financial advisory firm.

Some services offer you access to a team of financial advisors; others offer a level of service that closely mimics what you’d get from a traditional brick-and-mortar-based financial advisory firm: In addition to low-cost investment management, customers are paired with a dedicated human financial advisor who develops a financial plan and helps them execute the advice.

Cost: A service that offers you access to a team of financial advisors will typically cost less, with fees that start at 0.30% of assets under management. A more holistic financial planning service that provides a dedicated certified financial planner, or CFP, will charge either a flat annual fee (generally starting around $400).

Personal Capital, Facet Wealth and Vanguard Personal Advisor Services are some of NerdWallet’s recommended online planning services that also offer investment management. (Personal Capital, Facet Wealth and Vanguard Personal Advisor Services are NerdWallet advertising partners.)

Traditional financial advisors

Traditional financial advisors provide portfolio management coupled with financial planning services. Clients meet face-to-face with a dedicated financial planner to discuss their overall financial picture and inventory assets and liabilities. You can hire a financial advisor to craft an overall financial plan or one to achieve specific goals, such as investing for higher education. The office may outsource some of the tasks (and some even use robo-advisors to manage customer investment accounts).

Cost: We recommend a fee-only financial advisor, which means they don’t earn commissions from the investments they use, which could introduce a conflict of interest. The cost of a financial advisor varies, but most charge an assets under management, or AUM, fee — typically 1%; more for small accounts and less for larger ones. Other advisors charge clients by the hour or an annual retainer.

Is investment management a good career?

Becoming an investment manager — or starting an investment management firm — can be a lucrative career move. Financial advisors earned a median of $87,850 in 2019, according to the U.S. Bureau of Labor Statistics, and the field is growing faster than average: The BLS predicts a 7% growth rate between 2018 and 2028.

Investment managers typically have a bachelor’s degree and can benefit from earning a master’s degree or a particular financial certification, like the certified financial planner designation. Investment managers often need to register with either their state or the U.S. Securities and Exchange Commission, depending on their assets under management.

Managing a client’s investments has its challenges: Investment management isn’t a precise science, and often even the pros fail to accurately predict the market. Despite this, a client’s anger may be directed at their advisor in times of financial turmoil, especially if their portfolio takes a dive. The investment management industry is also facing new challenges from the rise of robo-advisors, which offer a less expensive alternative to traditional investment management.