Definition of Portfolio Manager
The term “portfolio manager” refers to the profile of those financial analysts who are responsible for managing the investment portfolios of their investors, which can be either individuals or companies. Their primary responsibility is to evaluate various available investment opportunities and recommend the best possible option to the clients while abiding by the relevant laws and regulations. In short, they intend to offer maximum benefit to the client at the minimum risk possible.
How to Become a Portfolio Manager?
Now, let us look at the steps that need to be followed in order to become a portfolio manager:
- Step 1: An aspiring candidate should acquire a bachelor’s degree in the field of finance, business, economics, accounting, statistics, or other related disciplines. These subjects help the candidate prepare a strong foundation that is required to start a career as a portfolio manager.
- Step 2: Although not all, some financial institutions strongly favor candidates with a master’s degree. So, it is advisable that students acquire a master’s degree in business, finance, risk management, or accounting. Some of the candidates go for the master’s degree straight after the bachelor’s degree, while others gain some experience before going for the degree.
- Step 3: Start the career as an entry level financial analyst and then gradually grow into the role of a portfolio manager as it requires a significant amount of market knowledge that can only be gained through experience. Typically, candidates either join at this level as graduate interns or as full-time employees.
- Step 4: A financial analyst must have a valid license from the financial industry regulatory authority (FINRA) in order to be able to buy and sell securities as part of portfolio management. Interestingly, some of the licenses can only be acquired after being hired as the exams require the analysts to have employer sponsorship.
- Step 5: The portfolio managers need to register themselves with their state’s securities agency, while managers handling larger portfolios (> $25million) may need to register themselves with the US Securities and Exchange Commission (SEC).
- Step 6: Some employers prefer candidates with professional finance designations or certifications, such as Chartered Financial Analyst (CFA) or Financial Risk Manager (FRM). There are certain criteria that need to be fulfilled before acquiring these professional credentials, like a bachelor’s degree, 3-4 years of professional experience, etc., and of course, clearing the respective exams.
Requirements of a Portfolio Manager
Given that not everybody can become a portfolio manager, there are certain requirements to be fulfilled before one can wish to become a portfolio manager. They are as follows:
- Should have at least a bachelor’s degree in finance, business, economics, or other related disciplines.
- Should have experience in the field of financial services or investment management, while preference is given to experience in portfolio management.
- Must have a valid FINRA license.
- Although not a must have, but it is good to have one or more finance designations or certifications, such as CFA, FRM, etc.
Qualities of a Good Portfolio Manager
Some of the qualities that are typically associated with a good portfolio manager are as follows:
- Must have a competitive spirit and an analytical bent of mind
- Should have strong communication skills
- Should have the ability to anticipate market performance
- Must be calm and patient
- Should possess decision making ability
- Must be capable of generating ideas
- Should be self-sustaining and emotionally balanced
Responsibilities of Portfolio Manager
Some of the major responsibilities of a portfolio manager are as follows:
- Select the best investment options for the client on the basis of their income level, risk appetite, age, preferences, etc. They should not be influenced by higher commissions or bias towards any particular investment.
- Inform the investors about the different investment options available, their expected returns, and the risks involved.
- Regularly update the clients and keep them posted regarding any material change in their portfolio. It is important to maintain transparency and honesty with the clients.
- To be at the right place at the right time(to make the correct investment decision) is one of the most important traits of a portfolio manager. In other words, they should keep track of the market fluctuations from time to time.
- He/she should always be at the top of his game and be updated about all the latest happenings in the financial domain.
- Build customized investment plans for all the clients as each client is a different individual and so their preferences may vary significantly.
Till now, it is quite clear that a portfolio manager requires extensive training, formal higher education along with good to have designations or certifications and this eventually results in a handsome pay package for this position. According to Payscale, the average salary of a portfolio manager in the USis $86,458, whereas the top 10% draw in excess of $143,000. The compensation is primarily made in the form of assets under management (AUM) fee earned from the clients, which can increase significantly with excellent performance as it helps to grow the client base.
Portfolio Manager Regulations
The portfolio managers come under the purview of the US SEC, who are responsible for supervising fund management and securities products in the US. The portfolio managers are governed by the US Investment Advisers Act of 1940.
So, it can be seen that the profile of a portfolio manager is both risky and exciting at the same time, as it offers the right balance of risk and reward. It will pose a lot of challenges, but it will also offer opportunities to grow, earn, and learn simultaneously. As such, anyone with the ability to conduct in-depth research, a knack for anticipating market movement, and a willingness to face upcoming challenges can pursue suitable courses to become a portfolio manager.
This is a guide to Portfolio Manager. Here we discuss the introduction and how to become a portfolio manager. along with the qualities and responsibilities of a portfolio manager. You may also have a look at the following articles to learn more –