When it comes to direct investments, individuals or institutions need proper knowledge of the market, access to the requisite tools for fundamental and technical analysis, market experience, constant monitoring, and impeccable decision-making skills. Portfolio management services are a great hassle-free alternative to direct investments as they own all the prerequisites necessary to manage and grow wealth. The best portfolio management services provide a range of investment solutions and streamlined and professional management of their client’s investments. Individuals often lack the approach to pick the best portfolio management service. Following are a few pointers to select the right portfolio management firms or services that could help make the entire process more worthwhile and profitable.
Different classes of portfolio management services
Here, the investments are solely at the discretion of the portfolio manager. The portfolio manager operates according to the client’s objectives and demands, without any intervention from the client. In accordance with the terms and conditions of the services, regular meetings can be scheduled with the client for evaluation and assessment. Most firms and consultants provide discretionary portfolio management services.
Here, the portfolio manager provides various investment solutions to clients per their individual demands and objectives. The role of the portfolio manager, in this case, is limited only to formulating ideas or solutions, and the client is at complete liberty to incorporate the ideas or reject them.
Here, the portfolio manager only provides the client with investment solutions, according to the client’s individual demands and needs. The decision to trade and invest as well as the actual trade and investment are to be executed by the client. The client is always at complete liberty to incorporate the ideas or reject them.
Non-discretionary portfolio management and advisory portfolio management have greater transparency and regular reporting. All investments are made in the client’s name, with the help of a power of attorney. This way the client can monitor all investment activities in real time.
Fee structure for portfolio management firms and services
Portfolio management firms and services may charge their clients an entry load at the time of purchase and/or an exit load at the time of exit.
Fixed management fees
Here, the firm or service levies a fixed charge which may vary between different products. It is usually charged on a quarterly basis or annually.
Profit sharing/performance linked charges
In this type of structure, along with a fixed fee, the portfolio management firms or services charge a certain amount/percentage of profits over and above the stipulated fund return. These additionally requested profits are related to the positive performance of the firm or service. In profit-sharing portfolio management firms and services, the percentage of the fixed fee is usually lower.
In addition to the above, all charges linked to equity investments like custodian fees, Demat account opening charges, and transaction brokerage is chargeable to the client. The best portfolio managers and firms offer features like the absence of entry load and exit load, zero lock-in period, flexibility to shift from one investment strategy to another, additional purchase facilities, and withdrawal facilities. The best portfolio management services and firms also focus on the varied distribution of assets and robust investment strategies.
Look for professional, client-centric, and hassle-free portfolio management firms or services
Individuals should select a portfolio manager or firm that provides online access to their portfolio, regular performance reports, and expert reports to stay updated on their investments and funds. Individuals should consider crucial factors such as dedicated fund coordinators for queries and a centralized team of service coordinators. They must select suitable portfolio management firms or services that take care of all regulatory and administrative hassles of their investments.
When selecting a good portfolio managers, individuals must also consider the efficiency of the services provided. They should check the existing customer base of the firm or manager offering the services. If the total client count is high, the firm or the manager may not be able to do justice to the services offered to the client. The best portfolio managers or firms provide personalized services, dedicated teams of coordinators, regular performance reports, and hassle-free services.
Look for portfolio management services or firms with the right investment approach
The correct investment approach is to focus on capital preservation while zeroing in on low-risk and high-return investments. Individuals should look at the investment strategy adopted by the portfolio manager before availing of their services. A firm or manager should make use of various asset classes while making a portfolio. At times promising portfolio managers might pick contrarian or unpopular stocks to invest in as these might have a higher potential for delivering good yield in the long term.
Look for portfolio management firms and services that focus on adequate risk management
Each client has unique demands, goals, and risk appetite. The best portfolio management services allocate the asset classes only after understanding the client’s risk appetite. The best portfolio management services diversify the portfolio to manage various types of risks such as market risk, liquidity risk, taxability risk, inflationary risk, regulatory risk, interest rate risk, and more.
Check the experience & performance history of the portfolio management firms or services
It is crucial for individuals to check the skill & experience of the portfolio manager or the firm. The manager, team, and/or the firm should be competent and aware of the market scenario. It is also necessary to scrutinize their stock selection and portfolio management strategy. Individuals should check past performance history and client references of the firm and/or managers before opting for any of their services.
Conflict of Interest
Some portfolio management firms are operated by certain stock broking companies or investment management companies. There is a conflict of interest and vested interest in some portfolio management firms operated by stock broking companies. The main business of these firms is to earn commission income by facilitating certain transactions. Operating portfolio management firms is an additional business for these firms. These companies might structure their client’s portfolios to earn more commission income, which may not benefit the client. The core business of investment management companies is managing the investments of their clients to earn management fees. So, with portfolio management firms run by investment management companies, there is a lesser conflict of interest or vested interest.
Therefore it is always advisable to choose portfolio management firms operated by investment management companies or portfolio managers offered by independent and unbiased firms.
In essence, there are seven factors to consider when looking for the best portfolio management services. Individuals should zero in on the class of portfolio managers and fee structure. Look for professional, and SEBI registered client-centric portfolio management firms or services with a good performance history and no conflict of interest.
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