Investment Management

The Complete Guide to Individual Portfolio Management

Investment Management: Comparing Private Independents to Large Public Firms

Plus: Find Out If You’re the Type of Investor Who Should Hire an Investment Manager

Investment management is how financial advisors and wealth managers put their investing plans into action.

A plan is created, based on the short and long term financial and lifestyle goals of the investor. That plan will include recommendations for how and where your portfolio should be invested.

Investment managers then do the actual work of placing your money in various investments such as mutual funds, stocks, and money markets, and then working with it over time to produce growth and fulfill the purpose of the plan.

A typical investment manager is also a financial advisor or wealth manager, at some level. But not all financial advisors are investment managers.

Which type of investment management professionals are best for you? After reading this, hopefully you will be armed with enough information to decide your next move as you seek to achieve lifelong financial serenity.

If you are a high net worth or ultra-high net worth investor with between $5 million and $500 million in liquid assets, Pillar Wealth Management may be a firm you want to speak with.

Talk to a Private Wealth Management Firm

Schedule a Call with CEO and Co-Founder Hutch Ashoo

If you want more help choosing the best financial advisor or investment consultant for your situation, we have created the most authoritative guide on the subject.

Get our free guide, The Ultimate Guide to Choosing the Best Financial Advisor, for Investors With $5 Million to $500 Million in Liquid Assets

Use the following table of contents to learn what you should know about the top investment management firms, how they work, and how to find the best professionals to manage your financial assets.

What Is Investment Management?

There are many sectors within the investment management industry.

The simplest general understanding is that an investment advisor’s role is to manage your investments on an ongoing basis by making trades, buying and selling equities, mutual funds, bonds, and other holdings to better position you for long term growth, or whatever investment objectives you may have.

Ultimately, investment management is about delivering an enjoyable life for the client, and stability for businesses, pension funds, and larger entities.

Many of the more commercial investment advisors and institutions also offer other money management services such as tax accounting, budgeting, and banking for individual investors.

Wealth managers are less likely to offer these services, as they devote their attention to helping their high net worth clients reach their long term goals.

They do this in part by investing generous amounts of time maintaining the client relationship and providing timely portfolio management advice as their life situation and the world around them continue to change.

Investment managers can serve individual clients, but they don’t typically serve average income investors who don’t have as much capital to invest. Wealth managers are a specialized branch of investment professionals who only serve high net worth clients.

Investment managers can also serve institutions like colleges, foundations, pensions and retirement funds, and insurance companies. Investment banking is a service distinct from investment management, and serves corporations and large companies, not individual investors.

Financial Advisor Beverly Hills

Basics of Investment Management

Investment managers offer an array of skills, advice, and services, including but not limited to:

  •  Managing asset allocation

The most important factor in any investor’s financial plan is the asset allocation. Get this wrong, and it doesn’t much matter what else you get right, no matter what the market is doing. The investment management portfolio will underperform.

  •  Financial portfolio analysis

As part of developing a client’s financial plan, the investment advisor will perform an analysis of your personal financial statements and holdings in all your various accounts and funds. They use the results of this analysis to make adjustments to your investment portfolio that will help you achieve your long term financial goals.

  • Strategic portfolio planning

You don’t need more investment products. The best investment consultants will use data-driven investment strategies for linking your portfolio’s returns to the achievement of your desired lifestyle outcomes.

Do you want a $500,000 fund set aside for your grandkids’ college educations? Your investment manager’s system should ensure security for this money in their financial planning services.

  • Selecting and distributing to equities

With the overall investment management plan and the investor’s goals in place, the advisors must then choose the specific equities, mutual funds, bonds, commodities, and other capital and market holdings that they believe are best suited for each investor.

This must be done with strong consideration for risk management. While some risk is essential for optimized investment performance, too much risk can erode your assets and leave your retirement plans vulnerable.

  • Monitoring and ongoing adjustment

As time goes on, the investment manager must continually bend the curve back in line with the original portfolio management plan.

A good analogy is an airplane flying from New York to Seoul. It’s a long flight, and in general, you’re flying west. But as you fly, you must continuously make small adjustments to keep the flight on target.

As you get closer to the destination – the goal – your adjustments become more specific and more targeted so you can be sure to land on the runway. You don’t want to land in the water or crash into the city.

And since you’re flying to Korea, you don’t want to end up in Japan.

Without help, timely information, and advice from a top investment management company, you are basically flying blind, but in a general westward direction, hoping your investments won’t lose too much value before you get to your retirement destination.

These are the basics.

As we go on, you’ll see what distinguishes private, independent managers from the large firms.

Do You Need an Investment Management Firm?

What sort of individual client or institution needs help from an investment manager? The simple answer is, the more complex your personal finance situation and the higher the stakes, the more investment and asset management advice can make a difference in your life.

What does ‘complexity’ mean? To be clear – it does not mean out of control, high-risk investments, hedge funds, or being behind on payments. Financial complexity, or what we could call ‘portfolio overwhelm,’ happens when an investor struggles to keep up with all their various banking and retirement accounts, mutual funds, pension funds, stocks, and investment decisions.

It means they have little sense of how to methodically and consistently grow their assets in such a way that they know they are on track to achieve their most desired lifestyle outcomes.

Investment management is not a one-time act.

You don’t just create a plan, set it on autopilot, and go on with your life. Instead, every month, you earn more money. And every month, you have decisions to make about this capital:

  • Where do you invest it?
  • How much do you allocate to each account, or each fund?
  • How do you maintain the asset allocation that aligns with your risk tolerance and optimizes your investments and market valuations?
  • Do you sell equities and bonds to rebalance your investment portfolio, or do you add new capital to keep the allocation within the boundaries?
  • How often?
  • If you need to take money out, which account should you use?
  • How do you avoid paying needless tax and avoidable fines?
  • How do you minimize your investment costs so your growth isn’t slashed in half?

Most of these finance and investment questions get more difficult in retirement, in part because you have to start withdrawing minimum amounts of money at various ages, and from different accounts.

Planning ahead to pay tax on retirement income, dealing with unplanned medical costs, preserving your assets in a market collapse – it doesn’t get easier.

For high net worth investors, seeking investment management services from a wealth management firm like Pillar is the most recommended path.

Who should play this critical role in your life?

This is why we strongly recommend, for just about every investor in the United States, our authoritative guide, The Ultimate Guide to Choosing the Best Financial Advisor, for Investors With $5 Million to $500 Million in Liquid Assets

Financial Advisor Palo Alto

Advantages of Private, Independent Investment Management Firms

The best investment management firms to consider – especially for high net worth investors – will be private, independent fiduciaries, not the large portfolio management firms and investment companies. Here are a few reasons why:

1. No Conflicts of Interest

Large publicly traded investment management firms have more layers of administration to fund as well as their own shareholders, so they will charge higher fees, or they will find other ways to charge you.

One way or another, their asset managers are getting their money, even if their marketing promises zero or super-low fees to their clients.

They have other interests to serve – their own.

But a private independent investment management company that also operates as a fiduciary will have no undisclosed conflicts of interest. They will be honest about the pros and cons of their investing decisions and always give you the final say.

2. Greater Expertise

Most of the big investment management firms hire younger employees to run their financial planning services. The large firms are where new finance career specialists go to learn the trade before starting their own independent firms.

But don’t assume every independent investment management firm will have greater expertise.

The best investment managers know how to study a client’s personal financial situation and desired lifestyle outcomes, create a financial plan based on those goals, and then select the best equities, mutual funds, securities, bonds, and other investment options to achieve them.

Pillar Wealth Management’s investment and asset management process is unlike anything you will find at other firms. If you have between $5 million and $500 million, you will be very interested to see how we create our 100% customized plans and manage our clients’ investments.

For a good introduction to our investment strategies, get our free eBook, Improving Portfolio Performance, the Shifts Multi-Millionaires Must Make to Achieve Financial Security and Serenity.

 Or, keep reading. We’ll give more details near the end.

3. The Time You’ll Save!

Remember the ‘portfolio overwhelm’ we talked about earlier?

As you get older and wealthier, the time you will spend analyzing financial statements, transferring money, trading equities, securities and mutual funds, managing taxes, rebalancing to maintain your ideal asset allocation of bonds and stocks, doing finance research, creating estate plans, retirement planning, selling businesses and real estate, cashing out stock options, managing required minimum distributions, running a foundation, minimizing estate taxes, responding to a life crisis or an external global market crisis – this takes TIME!

With a top investment advisor on your side, you don’t have to spend time on almost any of this.

You can enjoy your life, knowing all these critical tasks are being handled by investment professionals whose job is to give you the enjoyable lifestyle you desire – especially in retirement.

With an investment manager, you will save time. You will save time. You will save time.

And with the best ones, you will save money too.

4. One-Stop Family Financial Planning

The best investment advisors and especially the top wealth managers offer much more than just investment management services. They will also help their clients coordinate other critical services – especially for high net worth individuals.

These including tax planning, estate planning, retirement planning, and many other tasks that all serve your goal of protecting your assets.

Protecting your wealth is an art, which is why we titled our signature work as such. If you have high net worth, you will get more value out of this book than we could ever charge for it: The Art of Protecting Ultra-High Net Worth Portfolios and Estates, Strategies for Families worth $25 Million to $500 Million.

5. Customized Financial Planning and Ongoing Asset Management

Large institutions don’t customize investment plans, because they can’t. They use systems that are pre-set with a variety of investment options.

They will find a way to fit you into their boxes. There will be elements of customization, but they cannot completely tailor their portfolio planning or investment management processes to your specific needs.

For instance, suppose you have a major life event when you’re 62 and you have to stop working sooner than planned. Suppose your business fails.

How will these scenarios affect your retirement plans? What should your investment manager do differently to adapt your risk management strategy to this unexpected reduction in capital?

With a customized investment plan like the ones Pillar Wealth Management creates for all our clients, making this shift is relatively simple.

But if you have a bulky, boxy plan from a big investment management institution, the best they might be able to do is adjust your risk tolerance or rework your asset allocation.

It won’t be specific to how your investment goals and personal finance have now shifted.

How Big Portfolio Management Firms Work

If you seek individual services from a large investment management company like Vanguard, Schwab, E-trade, or Fidelity, their fairly generic consultation process will include many of these common features:

      • • Limited array of asset distribution options (“high risk,” “moderate risk,” etc)
      • • Standard questions they ask everyone
      • • Blanks to be filled in
      • • Checkboxes to check
      • • Gathering your account and finance information like savings, debt, mortgage, investments, Roth IRA, pension funds, mutual funds
      • • Inputting your personal finance data into a computer
      • • Telling you about their great services and all the reporting you’ll get (which is all automated – they want to talk to as few people as possible)
      • • Projections about how your investments will perform over 20-40 years at average market growth rates

At the big firms, your investment goals, lifestyle dreams, and financial situation will be forced into their pre-determined procedures. Anything outside of that gets noted and acknowledged respectfully, but it doesn’t really change what they fundamentally do for you.

And this is fine for most investors. Most people don’t need anything more than this. But it is limited in what it can do for high net worth investors who expect more, as you’ll see in a bit.

Independent investment management firms like ours will often deposit your money into brokerage accounts at the large investment companies, which then function as third-party custodians. So, our investment professionals do not personally ‘have’ our clients’ money.

We manage the portfolios, but the money is held by a third-party. This is the safer arrangement, and you should insist on it no matter which private investment management company you work with, because it protects you from getting duped by an unethical financial advisor.

10 Largest Investment Management Companies

To be clear on who we’re talking about, the ten largest investment management companies currently are:

        1. Bank of America
        2. Morgan Stanley
        3. J.P. Morgan Chase
        4. Wells Fargo
        5. UBS
        6. Charles Schwab
        7. Vanguard
        8. Fidelity
        9. Goldman Sachs
        10. Northern Trust

Most of these companies have pretty good reputations. Though, the fact that some do not, and the reasons for it, is one reason not to put too much consideration on the size of a firm’s assets under management (AUM).

Remember, much of those assets come from smaller investor portfolios. Last we heard, Vanguard’s average investor account value was about $22,000.

So, factoring in the problems of financial complexity faced by high net worth investors, these investment management companies are not the leaders in areas like customization, responsive investing, or personal concierge services.

What Most Large Investment Management Firms Cannot Do

The biggest companies in the investment management industry are not optimized to serve high net worth individuals who usually have unique investing issues and expectations. Here’s why:

No Solutions or Strategies for Your Biggest Questions

Here are some of the questions asked especially by high net worth investors, many of whom also own businesses and real estate:

      • • Can I really retire at age 50?
      • • How much money should I set aside for unplanned future major expenses?
      • • Will my passive income and investment growth be enough to sustain my lifestyle?
      • • Are hedge funds and private equity good investments? Why not?
      • • Should I sell one of my properties?
      • • Should I sell my business?

These are the questions that matter the most!

An investment advisor cannot offer solutions to these by filling in blanks and checking boxes.

They need an adaptable, customizable strategy that begins with listening, and can build every possible solution into its investing process.

Suppose your investment manager is offering advice about changing your retirement plans, and gives you two projections for your future investment returns (knowing that these are just guesses, because past performance has no bearing on the future).

First, they present a lower-risk asset allocation which is projected to earn 6% annual growth. Then, they offer a higher-risk allocation with a 9% projected annual growth rate.

What does this fund performance really mean for you? Is the 9% option better, knowing that its higher risk profile could cause it to swing much lower if another recession or sudden market downturn hits?

Does anyone have a data-driven strategy for answering questions like this?

Most investment managers who deal with individual customers at large banking firms are – to be completely honest – not much more than glorified tellers.

When you ask questions like this, most of them will suggest that it ultimately depends on your own preferences, investment goals, and judgment.

“It depends” is the simplest way to avoid answering a difficult question. Another common one – “It’s hard to say for sure.”

You have a lot at stake. An investment manager who has developed a data-driven strategy can help you make difficult investment decisions, with confidence.

How do our financial advisors answer client questions like this? Find out in our eBook, Improving Portfolio Performance, the Shifts Multi-Millionaires Must Make to Achieve Financial Security and Serenity.

No Customized Response to Market Volatility

What happens if the market crashes right around when you retire? What if it stays down for many years? What if it rides a rollercoaster for ten years, barely gaining over a prolonged period?

All of this has happened – just since the year 2000.

Here’s a quick 3-step response to market volatility

What adjustments should you make in your investments in response to market volatility? Change your asset distribution? Buy more bonds? Sell more securities? Get new mutual funds? Convert your pension fund into a Roth IRA?

Should you buy or sell some property? Adjust your lifestyle? Alter your risk tolerance?

How do you know?

Almost no investment managers, and certainly not big Wall Street institutions, have a customized strategy or coherent investing philosophy for responding to market volatility when timing is everything.

When the coronavirus hit in February 2020, the market imploded. By June, it was back up, only to slosh around for a while beyond that.

Imagine being retired, at 70 years old, and your investment advisor’s recommendations are to cut your losses and get out of the markets in March. Had you followed that advice, you would have missed the surprisingly fast initial rebound, which included two of the biggest single day market rallies in history.

Ongoing investment management that achieves all your long term goals incorporates many more situations like this.

Large investment management companies do not have a research or analysis process they can activate immediately when life throws you a financial lemon. You need more than someone telling you to “wait it out.”

How Much Do Investment Managers Charge?

Upfront fees for advisors in the investment management industry can range from nearly 0% up to 2% for a typical private investor. The most common fee is around 1% of the portfolio’s value, each year.

Wealth managers often use a sliding scale, with a fee that declines as the size of the investment portfolio increases. Our financial advisors use this fee-only practice.

But many investment management firms also earn money in other ways, which is why the upfront fee isn’t the only cost that matters.

If a manager charges 0.4% annual fees, but then also makes commissions, kickbacks, and money from other internal fees and investment products, that 0.4% doesn’t tell the full story.

Here are six other sometimes hidden costs and fees that, especially if you’re paying more than one of them, can easily eclipse the base fee charged by many money management specialists.

How to Find the Best Wealth Manager

This is hard to answer for several reasons. First, the law forbids investment advisors from using testimonials. And, we are not allowed to show performance data for specific clients.

Second, a lot of people really like their advisors, but some of those investors just don’t realize how much they’re missing out on.

Getting general investing recommendations from friends, family, and coworkers is a good place to start, but it will only get you so far.

Third, while you can search online for investment management information or respond to marketing you receive in the mail, you have to navigate claims and promises that are hard to verify without any guidance.

So what can you do? How do you find the best investment managers when the information you need most isn’t legal, and the information that’s out there is not always reliable or useful?

We recommend starting with our free guide, The Ultimate Guide to Choosing the Best Financial Advisor, for Investors With $5 Million to $500 Million in Liquid Assets.

You will learn so much!

We packed everything we could think of into this elite-level investor’s resource. It has no equal. And if you’re worried, it is not a veiled sales pitch.

Not everyone is an ideal client for our investment advisors, and we actually turn some clients away  if we don’t think they’re a good fit. The relationship has to work both ways.

Beyond that, our recommended process for finding the best investment managers is this:

        • 1) Know what you want – clarify your goals, hopes, investment philosophy
        • 2) Look for managers who match what you want, on paper
        • 3) Talk to them

Talking to an advisor is the only way to find out if they are the best option – for you. The most important thing you want to understand is their strategy for portfolio planning and investment management.

That is #1, by far.

Pillar’s strategy – which is unlike any other we know of – can be summed up in three parts.

    1. 1000 Portfolio Stress Tests Based on Real Historical Data

Did you know your portfolio can be tested against market performance data?

How would your investments have held up during, the inflation of the 1970s, on Black Monday, or during the dotcom bust? How well would your portfolio have performed in the 1950s or the 1990s boom years?

Our testing process will show you.

But that’s the easy part. If they wanted to, all investment advisors could do that for their clients. (Why don’t they?)

The real treasure that awaits you is found when we run your investment management portfolio through 1000 hypothetical stress tests, what we call ‘what if’ scenarios.

These are events, and combinations of events, that haven’t happened, but very well could. The market performance data behind these scenarios comes from the same 100 years of historical data.

So – we run your investment portfolio through those 1000 stress tests, and see how it holds up.

    1. Assess Your Portfolio’s Comfort Status

If your portfolio performs is projected to exceed – not meet – ALL your most desired lifestyle outcomes through the end of your life in 75-90% of the stress tests, you are in what we call the Comfort Zone.

We call it this because being in this position virtually assures you – as much as is humanly possible as far as we know it – that you will get to live out your life as you desire.

If your portfolio falls outside that Zone, we make targeted adjustments to five areas that are within your control and rerun the tests until you are back in the Zone.

For instance, if the market collapses, should y0u adjust your investment plan?

Well, it may turn out that all it takes to remain in the Comfort Zone is to reduce the amount you plan to give to your heirs by $50,000 per child.

Just an example, but that’s the sort of thing we can adjust within your 100% customized financial plan.

    1. Ongoing Investment Management

Once your investment plan has been adjusted, what remains is to keep it current, and maintain its Comfort Zone status.

We update all our clients’ plans every quarter, rebalance their asset allocations in accordance with their plans, re-run the 1000 stress tests, and keep them comfortable.

Talk to a Private Wealth Management Firm

Schedule a Call with CEO and Co-Founder Hutch Ashoo

Financial Advisor Bay Area