The terms Financial Advice and Investment Management are often talked about in the same breath, however, the roles of a Financial Adviser and an Investment Manager are actually unique, each with their own particular emphasis on an area of financial management, with some areas of overlap.
For example, here at AV Trinity, we are Chartered Financial Planners (another name for qualified Financial Advisers) and we offer our clients financial advice on a broad spectrum of topics relating to their money. Our remit includes anything from advising how a client could make the most of their pensions and ensuring their families are well covered from an insurance perspective to arranging mortgages and valuing a couple’s assets at the point of divorce. Clearly, as part of this overall service, we may be required to recommend where a client place their money, which could be with investment providers, asset managers or fund managers (another name for Investment Managers), however, there is a clear distinction between the service delivered by Financial Advisers and Investment Managers.
What is Financial Advice?
Financial Advice is often referred to as Financial Planning because the aim is to look at your life and finances as a whole. It involves planning for the short, medium, and long term and taking account of any changes that may occur along the way.
What is a Financial Adviser?
In basic terms, a Financial Adviser is a qualified professional who works for a firm that is either independent (like AV Trinity), or one that is connected to another company, such as a bank, insurer or investment provider. Financial Advisers can specialise in single areas such as mortgages and protection (insurance), or they could be Financial Planners who advise across a broad range of financial matters.
What is the purpose of a Financial Adviser?
A Financial Adviser’s overall aim is to understand your complete financial position and identify when external influences or pressures may mean that you have become more vulnerable financially, either temporarily or permanently. This means that advice from a Financial Adviser is useful for every stage of life; from planning the best way to save for retirement to purchasing a house, advising how to deal with a sudden windfall such as an inheritance and helping you plan your savings and investments once you have retired.
The skills of a Financial Adviser lie in helping you make the right financial decisions at the right time.
What are the day-to-day responsibilities of a Financial Adviser?
Contrary to popular opinion, a Financial Adviser’s role is not to sit in front of a screen and monitor the financial markets, trading shares, bonds and investments continuously to maximise client returns. In fact, a Financial Adviser’s role focuses much more on the bigger picture, with timescales in mind that often run into decades.
Essentially, a Financial Adviser’s day-to-day responsibilities are to:
Help clients understand their finances and define their financial goals.
Create and implement a financial plan, making adjustments along the way as life or market and economic forces intervene.
Help clients make informed and rational financial decisions in the face of uncertainty.
Identify investment solutions against criteria including investment objectives, risk profile, time horizon, and sustainability and ethical preferences, and completing due diligence on those investments.
Ensuring the suitability of investments, not the performance of those investments.
What is Investment Management?
Investment Management is the implementation of an investment fund's investment strategy and managing its subsequent trading activities, on behalf of all the investors within their fund.
What is an Investment Manager?
Investment Managers are qualified professionals who tend to work for institutions, managing hedge funds, mutual funds, pension funds, or trust funds – they are most often referred to as Fund Managers or Asset Managers.
An active Investment Manager will aim to lead its fund to beat its competitors and their benchmark index or indices. A client will typically have to pay higher fees if they invest in an active fund as more trades are being made in the portfolio, more active research is needed into how the money is invested and as result, there are increased salaries of the investment managers to cover. This often means that the fund will have to perform significantly better than the market benchmark just to provide the same overall return as the market benchmark, whilst attracting a higher degree of risk.
A passive Investment Manager will normally try to mirror the returns of an index or indices. This often makes them a cheaper overall investment as there are far fewer trades being made in and out of the portfolio and fewer staff required to manage it.
Discretionary Fund Management is when an investment professional known as a Discretionary Fund Manager (DFM) builds and manages a portfolio of investments on a client’s behalf.
What are the day-to-day responsibilities of an Investment Manager?
Overall, the skills of an Investment Manager lie in portfolio construction and risk management.
The day-to-day responsibilities of an Investment Manager include:
Making decisions on the fund/portfolio’s asset allocation, expected returns, risk/volatility tolerance, and time horizons.
Regularly meeting with investment analysts and company managers to discuss financial matters relevant to the fund/portfolio.
Making buy, sell and hold decisions within the fund/portfolio.
Delivering investment returns in line with the fund/portfolio’s objectives.
Measuring fund/portfolio performance by comparing results to predetermined benchmarks.
Ultimately, the success of the fund/portfolio.
Conclusion.
As you can see, the difference between a Financial Adviser’s role and that of an Investment Manager are quite distinct, but the easiest way to illustrate the difference is to think about time. A Financial Adviser assists their client with financial planning for the long-term, whereas an Investment Manager is solely focused on the actual selection, performance and reporting of assets within a portfolio, often having to take action in downturns and make the tough decisions required for short and long-term performance.
Investment Managers issue regular reports on their investment funds and it is a Financial Adviser’s role to skilfully review these reports and match a client’s objectives and risk tolerance with a fund that meets their requirements from an almost endless number of funds available on the market. The performance of a client’s investments is then regularly reviewed by their Financial Adviser in lockstep with their overall financial position so that any adjustments in the portfolio can be made to take account of a client's need for current and future for income, capital growth, preservation of capital, cash needs and such like.
What’s next?
If you need help or advice on your personal or business finances or if you want to review your finances and set some financial goals, you canget in touch with one of our advisorsfor independent financial advice. We offera free initial consultationand although we are based in Tunbridge Wells, we advise clients across the UK.
Don’t forget, this article offers general financial information and should not be taken as personal advice. Remember that investments and pensions can go up and down in value, so you could get back less than you put in. Tax rules can change and the benefits depend on individual circ*mstances.
