What Do Investment Firms Do and How Do They Work?

Investment firms are synonymous with terms like stewardship principles, governance, securities, and mutual funds.

But exactly what is an investment firm? Canadian investment firms work closely with clients like you to establish financial goals and formulate a plan to achieve them. Investment management firms help you to build wealth by creating a portfolio of solid investments based on your needs. Whether safe but slow bonds, burgeoning yet risky stocks, or something in between, investment and wealth management firms take on all the effort of selecting investments and open up new investment opportunities for you.

What is Investment Management?

Used by both group and individual investors, investment management aims to make the most of your money. It is an ongoing process that builds a portfolio of securities, like stocks, bonds, and other investment options, based on your goals.

Sometimes referred to as asset management, portfolio management, or money management, Canadian investment management firms provide a professional service to simplify and optimize the management of your portfolio. Investment managers employ a three-pronged plan of action:

1. Evaluate Your Financial Goals, Appetite for Risk, and Other Considerations

When creating your profile, the first thing an investment advisor will do is help you to firm up your investing goals. You may be asked questions like:

    • When will you need to access your money?
    • Does your timeline require short-term or long-term returns?
    • What is your investment budget?
    • What returns do you require?
    • What is your risk tolerance level?

Your answers dictate what investments are most suitable for your unique set of goals, circumstances, financial situation, appetite for risk.

2. Track Potential Investments

The best investment firms are at the very forefront of financial opportunities and economic predictions. Staying up to date with new investment possibilities, assessing them, and calculating the risks and returns of each is part of the service.

3. Develop Investment Strategies

Drawing on the knowledge garnered from the steps above, your investment advisor creates a custom investment strategy. From there, the specific mix of different types of investments will be decided and traded as needed. Your investment manager monitors, reports, and advises on the overall performance of your portfolio.

Types of Investment Firms

Having replied to the question, “What does an investment firm do?”, let’s throw a spanner in the works by pointing out that there are different types of investment management firms!

In terms of format, there are three main types of investment firms:

1. Robo-advisors

Robo-advisors are automated, online service providers that use complex algorithms to determine your ideal mix of investments according to the information you provide.

Pros: Inexpensive | Cons: Completely hands-off

2. Online financial planning services

Online financial planning services include investment management. Some provide access to both online and human financial advisors that may assist with additional products such as retirement and estate planning, life insurance, and so on.

Pros: Mid-range pricing | Cons: A long-distance relationship

3. Traditional investment firms

Traditional investment firms let you meet face-to-face with a dedicated financial professional. Not only can they manage your investments, but wealth management services coordinate with other professionals (accountants and lawyers) to provide high-net-worth clients all-round expertise.

Pros: Holistic understanding of high-net-worth investment strategies and their unique challenges. Personal and consistent discussions about key changes to your portfolio. | Cons: Higher fees

How Do Investment Management Firms Make Money?

Being in the business of generating wealth, it will come as no surprise that investment management firms do not work for free!

Your costs will be either commission on the products you buy, or a management fee plus a percentage of the profits from your investments.

A fee-based structure sidesteps a sales pitch at every meeting with your advisor. It is also a great motivator because the more profit they make for you, the more money they make for the firm.

Nour Private Wealth (NPW) is a Canadian investment firm with a team of wealth advisors servicing clients across seven provinces. Contact us today for more information on how we can help you manage and grow your wealth.

This commentary is provided for general informational purposes only and does not constitute financial, investment, tax, legal, or accounting advice. Please speak with your accountant about tax or accounting advice. Individual circumstances and current events are critical to sound investment planning and not all investments are suitable. Please speak with your investment advisor prior to investing.

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