# Investment Management: More Than Just Buying and Selling Stocks

![Investment Management](https://www.investopedia.com/thmb/n2bevmtqfJS6o5Ac0igqYMFqC4c=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/investment-management.asp-Final-dda80f50723949e69894166287352a39.png)

*— Investopedia / Dennis Madamba*

> **Definition**
>
> Investment management is the professional management of financial assets and securities to achieve specific investment goals for clients, which can include individual and institutional investors.

## What Is Investment Management?

Investment management refers to the handling of an investment portfolio or a grouping of assets. It involves buying and selling assets, developing investment strategies, creating a tax strategy, and managing asset allocation. It can also include banking, budgeting, and other financial duties.

The term most often refers to the management of holdings in an investment portfolio and trading them to achieve a specific investment objective. Investment management is also known as money management, portfolio management, or wealth management.

### Key Takeaways

*   Investment management refers to the handling of financial assets and other investments by professionals for clients.
*   Clients of investment managers can be individual or institutional investors.
*   Investment management includes devising strategies and executing trades within a financial portfolio.
*   Investment management firms handling over $25 million in assets must register with the SEC and accept fiduciary responsibility toward clients.

## Understanding Investment Management

Professional investment management aims to meet particular investment goals for the benefit of clients whose money they have the responsibility of overseeing. These clients may be individual investors or [institutional investors](https://www.investopedia.com/terms/i/institutionalinvestor.asp), such as pension funds, retirement plans, governments, educational institutions, and insurance companies.

Investment management services include asset allocation, [financial statement analysis](https://www.investopedia.com/terms/f/financial-statement-analysis.asp), stock selection, monitoring of existing investments, and portfolio strategy and implementation. Investment management may also include financial planning and advising services, not only overseeing a client's portfolio but coordinating it with other assets and life goals.

Professional managers deal with a variety of different [securities](https://www.investopedia.com/terms/s/security.asp) and financial assets, including bonds, equities, commodities, and real estate. The manager may also manage real assets like precious metals, commodities, and artwork. Managers can help align investments to match retirement and estate planning as well as asset distribution.  

According to an annual study by research and advisory firm Willis Towers Watson, the 500 largest investment managers had a combined total of $128 trillion in [assets under management (AUM)](https://www.investopedia.com/terms/a/aum.asp) at the end of 2023. This represents an increase of 12.5% from the previous year, which saw a decline of $18 trillion in AUM.

> **Fast Fact**
>
> In corporate finance, investment management includes ensuring a company's tangible and intangible assets are maintained, accounted for, and well-utilized.

### Running an Investment Management Firm

Running an investment management business involves many responsibilities. The firm must hire professional managers to deal with, market, settle, and prepare reports for clients. Other duties include conducting internal audits and researching individual assets—or asset classes and industrial sectors.

Aside from hiring marketers and training managers who direct the flow of investments, those who head investment management firms must ensure they move within legislative and regulatory constraints, examine internal systems and controls, account for cash flow, and properly record transactions and fund valuations.

Generally, managers with at least $25 million in AUM or those who advise investment companies offering mutual funds must be [registered investment advisors (RIA)](https://www.investopedia.com/terms/r/ria.asp). They must register with the Securities and Exchange Commission (SEC) and [state securities administrators](https://www.investopedia.com/terms/s/stateadmin.asp) and agree to accept the [fiduciary](https://www.investopedia.com/terms/f/fiduciary.asp) duty to their clients. This means they may face criminal liability if they don't act in their client's best interests. Those with less than $25 million in assets only register in their states.

Investment managers are usually compensated via a [management fee](https://www.investopedia.com/terms/m/managementfee.asp), which is a percentage of the value of the portfolio held for a client. Also, fees are typically on a sliding scale—the more assets a client has, the lower the fee they can negotiate. The average management fee is between 0.5% to 2%.

## Challenges of Investment Management

### Market Behavior

The revenues of investment management firms are directly linked to the market's behavior. This connection means the company's profits depend on market valuations. Major asset price declines can lead to a drop in the firm's revenue, especially if the reduction is great compared to the ongoing and steady company costs.

Clients may be impatient during hard times and bear markets, and even above-average fund performance may not be able to sustain a client's portfolio.

### Low-Cost Alternatives

Since the mid-2000s, the industry has also faced challenges from two other sources, both of which charge lower fees than human fund managers.

1.  The growth of [robo-advisors](https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp)—digital platforms that provide automated, algorithm-driven investment strategies and asset allocation. Robo-advisors don't use human beings at all—other than the programmer writing the algorithm.
2.  The availability of [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp), whose portfolios mirror that of a benchmark index. This exemplifies passive management since few investment decisions have to be made by human fund managers.

According to some surveys, these lower-cost alternatives will often outperform actively managed funds—either outright or in terms of overall return—primarily due to them not having heavy fees dragging them down.  

> **Important**
>
> The pressure from the competition is why investment management firms must hire talented, intelligent professionals. Though some clients look at the performance of individual investment managers, others check out the overall performance of the firm. One key sign of an investment management company's ability is not just how much money their clients make in good times—but how little they lose in the bad.

## Advantages and Disadvantages of Investment Management

### Advantages

*   **Professional analysis:** You can rely on the strength, history, and expertise of an investment management firm to guide your investment decisions and manage your portfolio.
*   **Full-time diligence:** It is common for investment managers to promise full-time diligence by [mitigating risk](https://www.investopedia.com/articles/investing-strategy/082816/methods-handling-risk-quick-guide.asp), making sure that client portfolios align with their goals, and explaining the value risks of different investments.
*   **Ability to time or outperform the market:** Investment managers use different tools to align their decisions to time or [outperform](https://www.investopedia.com/terms/o/outperform.asp) the market, including company fundamentals, [economic indicators](https://www.investopedia.com/terms/e/economic_indicator.asp), and market research.
*   **Ability to protect portfolios in down times:** Investment managers have a fiduciary duty to act in their clients' best interests so they can rest easy that their portfolios will be safe—even during times of distress. They may do this by diversifying asset classes and investment types, [rebalancing](https://www.investopedia.com/terms/r/rebalancing.asp) portfolios, and hedging strategies.

### Disadvantages

*   **Sizable fees:** The cost of using investment management can be high—as much as 2% of the total client's managed assets, which can cut into their clients' returns.
*   **Profits fluctuate with the market:** Using an investment management firm—no matter how successful—doesn't guarantee results. Rather,
*   **Challenges from passively managed vehicles and robo-advisors:** Investment management firms may rethink their fees and minimum asset requirements to compete with new entrants in the market, including passively managed vehicles and robo-advisors. Competitors like these make investing easier for individuals who want a no-nonsense and [automated investing](https://www.investopedia.com/what-is-automated-investing-7569400) approach while paying low fees.

Pros

*   Professional analysis
    
*   Full-time diligence
    
*   Ability to time or outperform the market
    
*   Ability to protect portfolios in down times
    

Cons

*   Sizeable fees
    
*   Profits fluctuate with the market
    
*   Challenges from passively managed vehicles and robo-advisors
    

## Investment Management Firms

The five leading asset management firms and the value of the assets they hold are:  

1.  **BlackRock** ($10.00 trillion)
2.  **Vanguard Group** ($8.59 trillion)  
    
3.  **Fidelity Investments** ($4.58 trillion)
4.  **State Street Global** ($4.12 trillion)
5.  **J.P. Morgan Chase** ($3.42 trillion)

These firms controlled 24% of total assets under management held by the top 500 firms.  

## The Current State of the Investment Management Industry

The investment management industry is facing challenges, changing client expectations, and evolving technologies that will continue to be huge factors throughout 2025 and beyond. [Big data](https://www.investopedia.com/terms/b/big-data.asp) and [artificial intelligence (AI)](https://www.investopedia.com/financial-advisor/how-ai-shaping-advisory-landscape/) will also continue to be drivers of innovation in investment management, helping to increase the effectiveness of strategies like [smart beta](https://www.investopedia.com/terms/s/smart-beta.asp). Here are some of the key findings from Deloitte’s investment management outlook:

*   Low [expense ratios](https://www.investopedia.com/terms/e/expenseratio.asp) are likely to become more commonplace as investors seek low-cost funds
*   Firms may have to expand the nature of their investment products to include alternative investments
*   AI is disrupting the industry, which means that firms must adjust and rethink how they use technology
*   Some of the risks that investment management firms face include technology, [cybersecurity](https://www.investopedia.com/terms/c/cybersecurity.asp), and regulatory developments  
    

## Investment Management Process

Investment managers typically design a portfolio with the client's interests in mind. This can include meeting with the clients to discuss their investment goals and [risk tolerance](https://www.investopedia.com/terms/r/risktolerance.asp). Based on the client's feedback, the investment manager then buys the assets and securities to fill the client's portfolio.

From then on, the manager will occasionally rebalance the portfolio as the market changes. The frequency depends on their agreement with the client—in some cases, it may be assessed once a year, once a quarter, or even every month. The more actively a portfolio is being managed, the higher the management fees.

Investment managers may also provide advice to their clients in other areas, such as how to save for college or retirement.

## What Does Investment Management Entail?

Investment management is the professional management of various securities (such as stocks and bonds) to meet specified investment goals for the benefit of investors. Services can be provided by individual portfolio managers, investment management firms, or financial institutions.

Investment managers conduct in-depth research and analysis of financial instruments and market trends to make informed investment decisions. They develop and implement investment strategies, allocate assets, manage risk, and monitor the performance of their clients' portfolios. They also maintain ongoing communication with their clients to ensure that the investment objectives remain aligned with their financial goals and risk tolerance.

## What Is Quantitative Investment?

[Quantitative investment](https://www.investopedia.com/articles/trading/09/quant-strategies.asp) refers to investment strategies that rely on mathematical formulas to identify assets with high profit potential or low risk. Quantitative asset managers are likely to use computer modeling or statistical tools to identify potential investments that have been neglected by the wider market.

## What Is the Difference Between Wealth Management and Investment Banking?

[Wealth management and investment banking](https://www.investopedia.com/articles/professionals/092515/career-advice-investment-banking-vswealth-management.asp) are two common career paths in the financial sector. The main difference is their clients: wealth managers help individual clients invest their savings, while investment bankers serve corporate clients.

## How Do Investment Management Firms Make Money?

Investment managers charge a fee for their services. The exact fee structure depends on the manager and the client's needs: most will charge a small percentage of the client's assets, a share of the annual gains, or an annual fee. Some managers may accept a flat fee for a one-time consult.

## How Are Investment Management Fees Typically Structured?

Investment management fees can be structured in several ways, including a flat fee, a fixed percentage of assets under management, [performance-based](https://www.investopedia.com/terms/p/performancecompensation.asp) fees, or a combination of these. A fixed percentage fee is charged based on the total value of the client's portfolio and is typically assessed annually or quarterly.

Performance-based fees are tied to the investment manager's ability to achieve specific performance targets, such as outperforming a benchmark index. In some cases, a hybrid fee structure combines both fixed and performance-based fees to align the interests of the investment manager and the client.

## The Bottom Line

Investment management is a service that helps investors achieve their financial goals and objectives through the professional management of their securities and assets. By employing investment strategies, conducting thorough research, and consistently monitoring market trends and portfolio performance, investment managers enable clients to optimize their investments and navigate the complexities of the financial markets

As fees and investment approaches vary, investors should carefully evaluate their options and choose an investment manager whose expertise, strategies, and fee structures align with their unique financial goals and risk tolerance. Ultimately, a well-managed investment portfolio can significantly enhance an investor's long-term financial security and wealth.

> **Article Sources**
>
> 1.  Willis Towers Watson. "[World’s Largest Investment Managers See Assets Hit $128 Trillion in Return to Growth](https://www.wtwco.com/en-us/news/2024/10/worlds-largest-investment-managers-see-assets-hit-dollar-128-trillion-in-return-to-growth)."
>     
> 2.  Financial Industry Regulatory Authority (FINRA). "[Investment Advisers](https://www.finra.org/investors/investing/working-with-investment-professional/investment-advisers)."
>     
> 3.  U.S. Securities and Exchange Commission. "[Division of Investment Management: Frequently Asked Questions Regarding Mid-Sized Advisers](https://www.sec.gov/rules-regulations/staff-guidance/division-investment-management-frequently-asked-questions/division-investment-management-frequently-asked-questions-regarding-mid-sized-advisers)."
>     
> 4.  Deloitte. "[2025 Investment Management Outlook](https://www2.deloitte.com/us/en/insights/industry/financial-services/financial-services-industry-outlooks/investment-management-industry-outlook.html)."