Portfolio Managers vs. Investment Advisors: How Do the Two Differ?

When it comes to building and handling a portfolio, it often feels like a two-person job. After all, your portfolio is more than just numbers. It is, in fact, the door to your future. It carries the potential to fund your dreams, protect you in times of uncertainty, and give you the freedom to reach the goals you have set for yourself. With something this important, it makes sense that there are specialists who focus entirely on helping you manage it.

Now, you may hear about portfolio managers and investment advisors and wonder if you need both. The truth is, you may need both. But you may also not always have to hire two people at once. Sometimes you may start with one, and later, as your needs evolve, you might find yourself working with the other. What matters most is understanding what each of them actually does, so you know who can best help and guide you at a given time.

A portfolio manager and an investment advisor both play important roles in financial planning, but in different ways. Once you know the difference, it becomes much easier to settle the investment management vs portfolio management debate.

What is a portfolio manager?

A portfolio manager is essentially the professional who manages your investments on your behalf. You may also hear them called investment managers. Their job is to build and maintain a diversified portfolio of investments, including stocks, bonds, mutual funds, index funds, Exchange-Traded Funds (ETFs), real estate, cryptocurrencies, and alternative assets. Their only goal is to help you meet your financial objectives. These could range from saving for retirement, growing your wealth, buying a house, or whatever else you could be planning for.

Portfolio managers take into account multiple factors around you to make sure your portfolio is resilient to external forces. They factor in market swings, political changes, tax updates, and more to keep watch and adjust the plan when needed.

A portfolio manager is also responsible for keeping you informed. They share their research with you, explain why they are recommending certain moves, and update you on how your portfolio is performing. You will usually meet with them a few times a year to review your objectives and make sure nothing in your life has changed that could alter your investment plan. For instance, if you receive a promotion or decide to retire earlier than planned, your portfolio manager will adjust your strategy accordingly.

Portfolio managers are bound by fiduciary responsibility and are legally and ethically required to put your best interests first. This ensures that they manage your portfolio responsibly and transparently. 

What is an investment advisor?

An investment advisor offers professional guidance on where and how to invest your money. Unlike a portfolio manager who directly handles your investments on a day-to-day basis, an investment advisor focuses on providing you with tailored advice about stocks, bonds, mutual funds, ETFs, or other investment products. They may also provide reports and insights on market trends so you have a clear picture of your options before making a decision.

An investment management advisor can also make decisions on your behalf. With your permission, they may have discretionary authority, which allows them to sometimes act without asking for your approval every single time. However, not everyone has the authority to do this. This is something you choose during the onboarding process, whether you want them to simply advise you or also act on your behalf when time necessitates.

In the United States, investment advisors who manage at least $100 million or more are required to register with the Securities and Exchange Commission (SEC). These professionals are called Registered Investment Advisers (RIAs). If they manage less than that, they typically register at the state level, unless they fall into special categories, such as internet-based or robo-advisors, which are exempt from registering with the SEC regardless of their assets under management. RIAs are held to fiduciary standards, so they are legally obligated to put your interests above their own. However, other investment advisors may only adhere to a suitability standard and may not be fiduciaries.

So, what does working with an investment advisor look like in practice?

Well, typically, they will start by learning about you. This would include understanding your income, savings, goals, risk appetite, and the like. Based on your answers, they will guide you toward investments that align with your long-term plans. Some investment advisors may also partner with broker-dealers to open and safeguard your accounts. This can make it easier to execute and monitor your investments in one place.

Different names can refer to investment advisors. Sometimes, you will hear them referred to as financial advisors or investment counselors. Regardless of the title, their role remains more or less the same.

Portfolio manager vs investment advisor – Two clear distinctions

Well then, let’s now get to a direct comparison between the two professionals:

1. Fee structures

When it comes to costs, both portfolio managers and investment advisors typically follow a fee-based model. But there are still some differences in how these are structured. A portfolio manager typically charges a fee as a percentage of the total assets they manage on your behalf. So, they would charge you more if your assets grow, but they would also be more incentivized to help your assets grow.

Of course, there is also the commission model. In this case, the portfolio manager may earn a commission by recommending or selling you specific products, such as mutual funds. While commissions can create a potential conflict of interest, since the manager may earn more from certain products. However, most registered professionals are bound by fiduciary duty. So, they are legally required to put your best interests first.

Investment advisors can also charge a management fee based on your assets, but sometimes they structure their fees differently. Some might charge flat fees, hourly fees, or even a percentage of your assets that they manage.

2. Fiduciary duty

Fiduciary duty is a significant difference between an investment advisor and a portfolio manager. If the professional you hire is legally and ethically bound to put your interests first, that is a huge relief. It takes a big load off your shoulders because you do not have to constantly doubt their recommendations or wonder if what they say makes sense for you. You can trust their advice.

Portfolio managers, by definition, carry fiduciary responsibility. So, when they suggest an investment or make a change to your portfolio, you can feel confident that the decision was made with your goals, risk tolerance, and financial well-being in mind. You can focus on your own life. This can be quite relaxing and offer you peace of mind.

Investment advisors can also have a fiduciary duty, especially if they are RIAs. But not every financial professional who calls themselves a financial or investment advisor operates under a fiduciary duty. Some may only follow a suitability standard, too, and their advice may be suitable, not necessarily the absolute best option for you.

Another thing that adds to the trust factor is registration. RIAs are registered with regulatory authorities. Registration equals accountability. These advisors are required to follow strict rules and standards, and they are held accountable if they fail to do so. So, as a client, you also have an extra layer of reassurance. You can look up an advisor on the SEC’s website or through state regulators to verify their registration. This adds legitimacy.

Will you ever need to rely on these safeguards?

Probably not, because most RIAs take their fiduciary duty very seriously. However, it is reassuring to know that if something does go wrong, there is a place to turn to for support and hold them accountable.

Reasons to hire a portfolio manager

Portfolio managers typically have access to research reports, financial tools, and analytical models that enable them to make more informed decisions. On top of that, portfolio managers also bring years of education and industry experience into every decision they make. They usually have the fancy degrees and certifications in finance to back them up. They also have a good amount of years spent studying the market, understanding investment strategies, and working with different clients. This becomes your advantage.

In many cases, portfolio managers charge a percentage of the assets they manage on your behalf. So, by hiring them, you would be in alignment with their vision. They would grow as your investments grow. This would keep them motivated to maximize your returns.

Of course, this does not mean every professional you meet will automatically be the right fit. Not all managers have the same level of access to resources, nor do they all have the same reputation. That is why you still need to do your part and research well. Look up recommendations and read the reviews so you can hire someone accountable and worthy.

Reasons to hire an investment management advisor

An investment advisor is likely to take a more personalized, big-picture approach. They do not just help you pick the right funds or stocks. They also look at your broader financial situation, including your income, expenses, goals, and even potential life changes in the future.

They can help you save oodles of time! Managing money well takes hours of research, constant monitoring, and learning. If you prefer to spend that time focusing on your work, family, or personal health, hiring an investment advisor can be beneficial for you.

They can also make decisions on your behalf if you grant them that authority, so you would not have to be involved in every small transaction. An investment advisor can also help you avoid mistakes and make more sustainable decisions. And in the process, also educate you!

Accountability is another reason to consider an investment advisor. Many are registered with the SEC or state authorities, which adds an extra layer of trust and regulation. Perhaps most importantly, advisors often focus on goal-based planning. They consider where you want to be five, ten, or twenty years from now. Their approach is less short-sighted and more future-oriented.

Investment advisor vs portfolio manager – Choosing the right option

When choosing between an investment advisor and a portfolio manager, the first step is to assess your own needs and goals carefully. Ask yourself what kind of support you really want. Your answer will point you toward the right professional for the job.

Trust is another essential factor. You can always benefit by making sure the person you hire is held to a fiduciary standard. This way, they would be legally bound to put your interests ahead of their own, for as long as they work with you.

Cost also matters. Make sure their fee structure works within your budget and aligns with how you prefer to pay. There is no point in hiring someone if their fees drain your finances instead of helping you grow them.

Once you have thought through these points, you will be in a better position to decide. And when you are ready, you can use tools like the Wiser Advisor’s free advisor match tool to connect with the right professional for your situation.