Effective investment management gives you a better chance of outperforming the market, and that’s where an investment manager comes in. Choosing the right one is crucial for individual investors or institutions looking to grow and protect their investments. According to some studies, your investment can yield a higher-than-average return of between 7% and 10% per year when you work with an investment manager. Such experts can manage your investment portfolios and handle every activity related to financial planning. Here’s what to look for in a good investment manager.
A track record of good performance is one reliable indicator that an investment manager is worth working with. What is their history regarding returns across various market conditions? Have they handled (or are they handling) portfolios and generated returns for their clients? Questions like these give you an idea of whether an investment manager is good.
However, it’s worth remembering that performance alone may not be enough to guarantee future investment success. It would help if you considered the risk factor also. For example, did the investor achieve high performance by taking the appropriate level of risk, or did they play it safe? And that leads to the next point.
- Risk management
Investment is risky, and you need a manager who can manage potential risks effectively to grow your wealth. A reliable investment manager should have tried-and-tested risk management strategies to protect your investment portfolio from unexpected events. They should be able to assess your potential risks with you and walk you through steps they will take to mitigate those risks, whether through diversification, hedging, or other risk management strategies.
Compliance is paramount when looking for an investment manager, but unfortunately, few take it seriously. You want to ensure your investment manager adheres to legal and regulatory standards for managing your funds. Conducting thorough research and asking the right questions can help you achieve this. They must adhere to private fund compliance and reporting regulations and operate within the legal boundaries, ethics, rules, and code of conduct. They should also stay away from fraudulent financial activities, mismanagement, and other forms of unethical practices.
Reports show that investment managers usually charge a percentage of the total assets under their management. Generally, this ranges from 0.20% to 2.00%, depending on factors like investment size and management style. However, the type of fund you invest in, the service you receive, and your outcome should determine the fees you pay. For example, you should expect lower fees on a cash fund than an equity fund. But some investment managers also add other charges like performance fees. So it’s best to understand your financial targets and be clear about what you expect from your investor before agreeing to any fees, which leads to one final point.
- Communication and transparency
Finally, you want an investment manager who is open and honest with you about their investment decisions, fees, and potential conflict of interest. They should report you regularly and give you updates about how your portfolio is performing without you always asking for it. They should also update you about the market outlook and the necessary steps you can take. A good investment manager should listen to your concerns, answer your questions, explain their decisions, and not write off any issue you may have.