Portfolio Manager Vs. Investment Advisor: Which Advisor Do You Need?

While portfolio managers and investment advisors might seem similar, they perform different roles. Portfolio managers help high-net-worth-individuals preserve their capital while adding to their corpus through carefully planned out strategies that are far more wide than just investments. They work with analysts and researchers to come up with a comprehensive plan that can help clients streamline their income and expenditure, plan their taxes, maximize gains from investments, manage their estates and may also involve asset and business transfer as part of legacy planning. Investment advisors, meantime, are specialists in assessing the investor profile and helping clients find the best-fit investment avenue and product to help them achieve maximum gains to grow wealth over time. Investment advisors are not specific to servicing high-net-worth-individuals, however, they too have a threshold to the minimum ticket size, or minimum assets for investment before they take on clients.

The need for qualified financial professionals is on the rise, thanks to a robust market with both new-age and seasoned investment avenues vying for investor attention. Investors have not yet wrapped their heads around cryptocurrency as an investment, and debates on whether it should figure in your investment portfolios or if it is just a fancy (and expensive) hobby to have are still ongoing.

It does not matter if you are a new investor or if you are looking to capitalize your existing investments. Whatever may be the case, investment advisors and portfolio managers are the resources you can turn to to find out ways to maximize wealth, beat inflation and meet your financial goals comfortably.

Each professional has their own expertise that an investor can benefit from. However, it is important to employ the right financial professional who can become a partner in your financial journey and can help you fulfil your financial goals. If you’re unsure of the most suitable financial services for your unique financial needs, consult a financial advisor to learn more.

Who are portfolio managers?

An individual, a group of people, or a firm that manages the investment and finance portfolios of clients on their behalf is known as a portfolio manager. Individual investors or even foundations hire portfolio managers to manage their investments. These people work with a team of analysts and are responsible for making investment decisions on behalf of their clients.

For high-net-worth-individuals looking at investing a sizable amount of money, hiring a portfolio manager is one of the crucial aspects to tend to. Portfolio managers themselves are generally experienced investors or traders who have sound financial knowledge with expertise in financial management. All these skills and a record of success in financial management is a recipe for an accomplished portfolio manager. However, the investors need not fret because portfolio managers are generally bound by fiduciary duty that ensures that they make complete disclosures about their dealings, and they put your best interest ahead of everything else. A conflict of interest may not ever arise where fiduciary duty is involved.

Portfolio managers are professionals who aim at achieving the financial goals of their clients by providing comprehensive packages that encompass everything from ideating and implementing investment strategies to careful monitoring, reassessment and timely rebalancing of portfolio allocation, inline with the desires and risk profile of the particular client. Portfolio managers may also be referred to as wealth managers or asset managers.

Portfolio managers can either be passive portfolio managers or active portfolio managers. When a portfolio manager takes an active approach to investing, they strategize how to beat the market benchmark and get the highest return. The exposure to risk is, in line with the aggressive stance, higher in active portfolio management, but so is the potential for growth in earnings. This will of course be a call by the investor, and a conscious decision by the portfolio manager, after assessing the risk profile and the financial goals of the high-net-worth-individual. Passive portfolio managers, on the other hand, specialize in passive investing and try to create a portfolio for the client that delivers stability of returns, protection of capital as much as possible, and earnings that mirror the market benchmarks – in simpler terms, a portfolio that has a balanced approach to risk-reward where the portfolio manager does not take on unnecessary risks in his quest for capital appreciation.

Portfolio managers always stay on the top of financial news, market development and related events. They are adept at choosing what asset class to invest the client’s funds in, determine a suitable asset allocation and manage risk to ensure the highest returns. Portfolio managers also measure the performance of a client’s portfolio using certain models, formulas and calculations to make sure the investment strategy adopted is the correct one.

Who are investment advisors?

Unlike a portfolio manager, investment advisors will not actively manage your funds. These professionals assess investor profiles and goals to find relevant investment avenues that the client could explore to grow wealth over time. Investment advisors make recommendations related to investments and provide consultation services via analysis and research reports to their clients. The title of investment advisor is recognised by law, and registered with a Federal Regulatory Organisation. These individuals generally only advise their clients on what investments to make and are paid in exchange for their advice.

Investment advisors also carry with their name expertise in finances but do not necessarily manage the funds of their clients. Some investment advisors may also be brokers. These advisors also have a fiduciary duty to their clients wherein, they always put the interest of their client first, and never make recommendations that are in a conflict of interest. From equity to bonds to hedge funds; investment advisors will make sure that the clients know about the pitfalls and advantages of specific investment instruments.

An investment advisor will study the needs of the client, understand their risk profile and analyse the financial goals to then make recommendations that suit the interest of the client. The final decision, however, will reside with the client since the professional is only giving advice. In addition to offering financial advice, investment advisors also offer to manage the investment portfolios of their clients or offer financial planning services but for additional costs.

Are you looking for a qualified financial advisor to guide you through your investment journey? Answer a few simple questions on the Paladin Registry platform and our free matching tool will connect you to 1-3 advisors that are suitable to your requirements. You may interview them and verify credentials before signing up.

Difference between portfolio managers and investment advisors

The terms ‘portfolio manager’ and ‘investment advisor’ are often used synonymously – a mistake that can cloud the judgement of investors as both these professionals perform specifically different jobs. Here’s how they differ.

1. Fiduciary Duty

The law mandates portfolio managers to uphold the standards of fiduciary duty and act in the best interest of their client. Portfolio managers are bound by the law of the land to not put their interests on top and override that of their client. Any violation of the fiduciary duty on the part of a portfolio manager can amount to breaking a law. This clause makes sure that the portfolio that the manager builds for the client is without any bias or conflict of interest, and is one that serves the best interest of the client.

Investment advisors, on the other hand, are not bound by the law to compulsorily adhere to a fiduciary standard in delivery of their duty. They may choose to adhere to such standards but are not bound by any law. They can sell clients products and services that might not be the best fit to the customer’s needs that will give them maximum returns, but may be suitable to the investor’s needs nonetheless, where the client benefits off it.

2. Fees and charges

Portfolio managers generally work on a fee-only basis and their services are charged as a percentage of total assets that they manage. Apart from this, portfolio managers do not receive any other fee, commission or brokerage from any other individual, firm or organisation. A transparent fee structure like this ensures that the professional is working only for the client and is not receiving any other kickback from any other source.

Conversely, investment advisors have the liberty to choose their mode of payment, many opting for an hourly rate as fees from their clients for the advice rendered to them. In addition to this, they might also receive a commission and other fees for recommending and selling a certain financial product to the client. They may also charge a separate execution fee or administration fee depending on the nature of work they agree on with the client that may include implementation of the financial investment plan.

3. Education and experience

Portfolio managers are required to meet extensive educational experience standards to be designated as portfolio managers. Portfolio managers must have formal training and certification in addition to financial and market knowledge and working experience.

However, no such rigorous standard is in place for investment advisors. Registered financial advisors (RIA) are, however, a league of investment advisors who are highly qualified and require registrations with FINRA and other organizations that provide certifications, and they adhere to fiduciary standards.

4. Personalised services and discretionary management

Since an investment advisor is not bound by a fiduciary duty, they may recommend and sell any type of financial product to the client. They can promote or endorse a product even if it does not contribute in the best way possible to meeting the goals or requirements of the client. This is simply because they earn a commission on their products. In other words, there is a possibility that investors may become prone to over-trading or lose sight of what their portfolio is meant to achieve if they blindly follow the advice of an investment advisor without giving it some thought or conducting research on the suggested products themselves.

With portfolio managers, personalized services can be rendered to the client based purely on what maximizes the wealth of the client and not what boosts their earning as a manager. Held to a fiduciary standard, portfolio managers often are representatives of the client themselves, and have independent jurisdiction to make research-backed decisions for investment or rebalancing portfolios of the client.

5. Financial objective

Objective of a portfolio manager and investment advisor differs both in the short-term and the long term. A portfolio manager can have a lifelong association with the client by helping them manage their portfolio from creation to retirement and legacy planning. An investment advisor, on the other hand, may have a short-term relationship with the client where the relationship may cease to exist after the investment goal for a specific time period has been met. It could even be a one-time or one-query kind of engagement.

It must however be noted that investment advisors have a keen sense of the market and the knowledge about the investment instruments available in the market, and therefore, can make recommendations to the client on a range of investments – from stocks to gold, ETFs and hedge funds to cryptocurrency and NFTs.

Do you need a portfolio manager?

High-net-worth-individuals who want the funds to be managed with no biases may opt for portfolio managers since they abide by their fiduciary duty. Investment decisions taken by portfolio managers will be independent of the owner’s bias and in the best interest of the client, aimed at protecting wealth while looking for capital appreciation avenues.

Clients who are keen to invest their money in capital markets but have no knowledge of how to do so or where to invest it can hire the services of professional portfolio managers to do the job for them. Delving into the investment business without having proper knowledge of the market can do more harm than good. Portfolio managers can bridge this gap. Opting for portfolio management is perhaps the best thing that people with no time on their hands can do to make sure their funds are safe and on the correct path for appreciation.

Portfolio managers can help investors get maximum return on their investments in addition to optimising risk and increasing capital appreciation. Such professionals help their clients improve the proficiency of their portfolio and protect the earnings against market risk.

Do you need an investment advisor?

Everyone needs help with making financial decisions in realms where we don’t hold expertise. Investment advisors will tell you how to make those crucial decisions and also help you navigate through complex financial situations that you encounter in life.

With hiring an investment advisor comes a sense of security and peace of mind of knowing that there is someone who has your financial interests at heart. While it is true that more and more people want to take charge of their finances, one must know that it is very difficult to beat the expertise of a professional. You do not want to make mistakes that can cost you heavily- a move that can be easily avoided by hiring an investment advisor. The case becomes more aggressive with multiple financial components like retirement accounts, mortgages, funds, investment accounts, and others. An investment advisor can help you navigate through all this effortlessly.

Want to own a house 10 years down the line? Want 2 sedans in the next 8 years? Want to retire by 50? Convey all your goals to your investment advisor and they will tell you exactly what investment instruments you could opt for in order to realise your goals within your time horizons.

Bottom line

While both investment advisors and portfolio managers have their job cut out for them, investors must carefully analyse the roles of the two financial professionals and hire someone whose services are in tandem with their financial requirement and in line with financial goals.

To get in touch with a fiduciary advisor who may provide you with wise financial strategies and investment plans, use Paladin Registry’s Free Advisor Match Tool and get matched with 1-3 vetted financial advisors who may be able to help you with your unique financial needs.

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