Independent investment management refers to investment management services provided by independent asset management firms. These firms are not affiliated with any banks, brokerages or other financial institutions. The key characteristics of independent investment managers are that they have fiduciary duty, offer open architecture, and charge fees based on assets under management.
Independent investment management is different from private banking, which is provided by private banks and focuses more on ultra high net worth individuals. It’s also different from retail investment advisory services, which are offered by brokers and target mass market investors. The core advantage of independent investment management lies in fiduciary duty, which legally requires them to act in clients’ best interests.
This article will elaborate more on the meaning, characteristics and differences of independent investment management, with a focus on how it benefits investors.
Independent investment managers have fiduciary duty and avoid conflicts of interest
Unlike brokers who only need to satisfy suitability standard, registered independent investment advisors (RIA) have fiduciary duty, which is the highest standard of care in investment industry. This legally requires independent managers to act in the best interest of clients and avoid conflicts of interest. Fiduciary duty ensures clients that their portfolio is managed properly without being influenced by any sales incentives.
Independent investment management offers open product architecture
Independent investment advisors have access to a wide variety of investment products, unlike restricted offerings from captive channels. With an open architecture, independent advisors can select optimal solutions for each client based on individual needs and objectives. This flexible platform allows constructing better portfolios.
Fees are charged as percentage of assets under management
Independent advisors typically charge annual fees based on a percentage of assets under management, which aligns incentives between advisors and clients. The more the portfolio grows, the more advisors earn. This contrasts with commission-based compensation from captive channels, which incentivizes churning and product pushing.
Independent management differ from private banking in client focus
While both provide customized investment solutions to clients, private banking focuses on ultra high net worth segment, usually requiring investable assets of over $5 million. Independent investment management has flexibility to serve clients across wide range of asset levels. The open product platform also differs from private banks’ propensity to push in-house products.
It contrasts with retail brokerage model targeting mass investors
Independent advisors provide fiduciary duty and tailored solutions, while retail brokers working for wirehouses and banks only need to meet suitability rule and focus on smaller investors. The brokerage model centers around pushing products that generate commissions, while independent advisors truly align with clients’ interests.
In summary, the core advantage of independent investment management lies in fiduciary duty, open architecture, and AUM-based fee structure. It differs from private banking and retail brokerage models by prioritizing clients’ interests over any conflicts of interest. For investors, independent management provides customized portfolios and solutions tailored to individual needs.