SEBI Registration

Meaning and Role of a Portfolio Manager

Portfolio managers are responsible for managing financial assets of their clients either actively or passively. Being well equipped with professional knowledge and experience in managing financial assets, they take investment decisions on behalf of their clients.     

Who is a portfolio manager?

A portfolio manager is a person who takes investment decisions on behalf of his investors. Their responsibility is to devise such investment strategies and processes which match the needs and objectives of his client, build and manage their investment portfolios and take investment decisions with such an objective that the client gets maximum returns and minimize the possibility of losses.   

Roles and Responsibilities of a portfolio manager

Following are the roles and responsibilities that a portfolio manager needs to undertake:

1. Designing a best investment plan based on needs and situation of the client: The primary role of a portfolio manager is to devise and design best investment plans for his client based on the client’s age, income, requirements, objectives and his risk appetite. Every investment plan would be tailor-made for each of the client. A portfolio manager’s attempt while designing such investment plan to maximize the returns on the investment with minimum risk for the client.
2. Educating and making the client aware about various investment tools: Another responsibility of a portfolio manager apart from designing the investment plan is to educate and make his client aware of the variety of investment tools that are available in the market and the associated benefits which a client can avail from them. Once the client is made aware of all the investment tools available in the market, he would be in a better position to make investment decisions. Educating the client about investment tools is considered to be a one of the best practices that is followed in the industry. Such education also builds trust of the client in the portfolio manager.
3. Designing tailor-made investment plans: The manager also needs to design a custom-made investment plan which is specific to the needs and financial situation and the investment objectives of the client. Every client has different financial and investment objectives based on a multiple of factors and keeping the same in mind, a customised investment plan has to be designed. There cannot be one-size-fits-all approach especially in portfolio management. So the manager first analyses the financial background of the client, his investment objectives and capacity to invest and then design the investment plan for him/her.
4. Be updated with the latest developments in the financial markets: Another responsibility of the manager is to keep himself updated with latest developments taking place in the market and report any relevant development with the client to take prompt actions so that returns can be increased and risks are managed. An eye should be there on the market fluctuations that are taking place and take proactive efforts to protect the client’s investments.
5. Manage risks and contain losses: A portfolio manager’s duty is not limited to making the investment plan but also to manage risks associated with such investments and in adverse situations contain losses for the client. Investment is not a fairy tale; there are always ups and downs which an investor has to deal with. A classic example is that of Russia-Ukraine conflict where the global financial markets have suffered to a great extent with rising crude oil prices. In such adverse situation, the role of a portfolio manager is to contain losses when every other person’s investment is crashing down. The role is not always to make best investment decisions but sometimes manage and contain losses when the whole market is crashing down.
6. Measuring performance of investment portfolio: The manager must check and measure the performance of the investment portfolio from time to time so any sudden and drastic changes in the market does not affect the client in an adverse manner. Constant performance check also provides the opportunity to withdraw the investment from non-performing assets and direct the existing assets to such areas where better returns can be expected.  
7. Being unbiased and becoming a through professional: A manager should not always look for commissions. Instead his responsibility is to exercise due care and caution while advising his clients and present before him the best possible investment decisions in an unbiased manner. This helps the client to take best possible decision for himself and in turn instils confidence in the manager. Ideally, a manager should always be transparent and honest with the client and refrain from pressurising the client to take certain decisions.
8. Taking appropriate and correct decisions at the right time: Last but not the least the manager should be an innovative and critical thinker to be able to take correct decisions at the right time to maximize returns for the client and minimize losses if any.

Difference between Financial Advisor and Portfolio Manager

Both the above-mentioned terms are used synonymously. However, there is quite a big difference between the two:

• A portfolio manager serves the long term investment interests of the client whereas a financial advisor^[1] is usually for shorter term period based on the client’s financial condition. So the relationships are for a longer term in case of the former.
• A portfolio manager earns fee from the percentage of the assets whereas a portfolio manager draws fees and commission based on the products sold to the client. 

Conclusion

Having covered the meaning and scope of responsibilities, it becomes important that client also proactively engages with the portfolio manager and always keep the manager on his heels. No matter how important a portfolio manager is, the money invested is that of a client and he alone ultimately bear the consequences of his investment.  

Read Our Article:Requirements for Portfolio Manager Registration