Financial Planning - Understanding Advisory Management
Advisory Management: The term advisory management refers to the provision of professional, personalized investment guidance. Advisory management services allow private individuals to consult with investment professionals before making changes to their portfolios. Advisory management professionals have expertise in one or more investment areas and provide guidance that is tailored to an individual's specific situation.
Advisory management is the provision of professional, personalized investment guidance, usually for a fee.
Individuals, independent teams, or a group of professionals within a private bank, investment management firm, or specialist advisory boutique can carry out advisory management.
Key roles in advisory management include financial advisors, portfolio managers, investment bankers, and investment managers.
Advisory management professionals review their clients' personal situations, determine the best asset classes, monitor investment performance, provide guidance, and rebalance portfolios.
Understanding Advisory Management: Advisory management involves the management and planning of investment portfolios, usually for a fee. Individual investors who seek investment advice will seek the services of an advisory manager or an advisory management firm. Individuals, an independent team, or a group of professionals within a private bank, investment management firm, or specialist advisory boutique can carry out advisory management. Key roles in the advisory management field include:
Financial advisors: These professionals provide guidance and financial advice including investment management, tax and estate planning.
Portfolio managers: This group comprises of one or more people who invest in any number of and manage day-to-day portfolio trading to maximize returns.
Investment bankers: These bankers help corporate clients find sources of capital for business deals, and also provide analysis and guidance.
Investment advisors: Clients who turn to investment advisors receive highly specialized advice and guidance for investment and financial planning.
Investment advisors who work for advisory management groups meet and work with clients in a number of capacities. They assess a client's time horizon, performance objectives, and risk tolerance to determine which asset classes are the most suitable investments. Advisors are responsible for routine monitoring of investment performance and often execute orders, and also provide guidance in the areas of asset allocation and portfolio rebalancing. Portfolio rebalancing safeguards an investor from undesirable risks and ensures that the portfolioâs exposure remains within the manager's area of expertise.
Asset allocation is the practice of balancing risk and reward within a portfolio according to an individual's goals or an institutionâs policy. Managers distribute the portfolioâs funds among three main asset classes: Equities, fixed-income, and cash and equivalents, along with alternative investments such as private equity and derivatives.
Because each asset class offers varying levels of risk and return, each behaves differently over time. Investors may use different asset allocations for different objectives. For example, someone who is saving for a year of travel in the near-term might invest his savings in a conservative mix of cash, certificates of deposit (CDs), and short-term bonds. Another individual saving for a down payment on an expensive homeâat least a decade awayâcould diversify into more stocks since she has more time to ride out the market's short-term fluctuations.
According to the Financial Conduct Authority, a wealth manager (sometimes also referred to as an investment manager) is a firm or individual that manages a clientâs money or investments on either a discretionary or advisory basis. However, many people are not clear on the difference between discretionary and advisory investment management, and are not sure which option is best for them.
Discretionary Investment Management.: A Discretionary service is where the firm manages a clientâs portfolio of investments in line with a risk profile agreed with them beforehand. This means the firm are able to manage the portfolio without checking with the client before making routine alterations. However, they will still be required to check beforehand if they wish to make a change that is outside the scope of the agreed mandate.
Advisory Investment Management: An Advisory service is where the firm will make recommendations based on the clientâs circumstances and attitude to risk; however, they have to contact the client and obtain agreement before any changes are made to the portfolio. The firm is unable to make changes to a clientâs portfolio without prior agreement.