Before figuring out the difference between Investment Management and Stockbroking, lets understand what are the core aspects of investment management and stock brokers.
What is investment management and Stockbroking?
Investment management firms invest their client’s money. Investment Management firms have the professionals and well qualified managers.
Professional investment managers use their discretion to make investment decisions. Investment management firms works with different kind of client’s base upon the client financial goals. Investment management charge fees for their services.
This firms make investment decision keeping consideration of economies, company fundamentals, risk and type of investing income, capital growth etc.
Now let understand what stockbroking is about. Stock brokers are regulated firms that offer financial advice to their clients.
They buy and sell equities or any financial securities on the behalf of their clients. Services offered by stock brokers to their clients led to earn fees named as brokerages, fess/commission.
Now let’s understand the major differences between Investment Management and Stockbrokers.
#1) Investment management has a discretionary approach. Means, they have agreed a strategy with their client. The client has delegated the day to day investment decisions on them. The portfolio building is done by investment management firms almost independently.
This is basically done like this because an investor may not have the market knowledge and time, to daily monitor their investments. Investment management firm do not call frequently for stock ideas.
Whereas stock broker’s calls and give ideas related to making investment in stock.
#2) Stockbrokers give more control to their clients for the investment decisions and filtering out the ideas which will work or won’t work.
Here, Investment management has the control where to make investment and generate ideas looking at fundamental parameters.
#3) Investment Managers offer an investment mandate; this is where the investment management service provides a document of what they are offering you in return of managing your portfolio.
You will understand what exactly they are targeting over the year, based on what risk, and should they achieve it – then they have fulfilled their service.
Example: The mandate could state that the strategies used and based on 7% volatility (risk), they seek to achieve 13% capital return.
Whereas Stockbrokers do not offer a future agreements but look to deliver growth during the time you are with them. They are not bound by their performances like investment managers.
#4) Stock brokers allow their clients to take risks as per clients risk appetite and exit the position in positions when ever client feels to exit. In investment management, clients do not have the freedom to take decisions.
#5) Investment management charges Fees. Where Stockbrokers charge commission or brokerage on transactions done by their clients.
Which to choose?
Both services provide professional approaches to investing in the stock markets.
Stockbrokers are chosen over investment managers by people who like to be in control and receive financial advice.
Stockbrokers generally do not have a systematic approach to the markets but use selective top-down approaches in stock selection.
Investment managers are chosen by investors who want an agreement on their performances over the year and understand the risk up-front.
Usually more sophisticated investors that wish to take advantage of the track-record and gain an understanding of the systematic approach used by the investment management firm. Selection mainly depends upon individual’s requirements and financial goals.
An individual who has knowledge and time will opt for trading himself and approach to stock brokers where as an individuals who does not have time and knowledge will approach to investment management firms.
Disclaimer: All blog posts of getmoneyrich.com are for information only. No blog posts should be considered as an investment advice or as a recommendation. The user must self-analyse all securities before investing in one.