Explained 101: Portfolio Management Process

Rahul Verma
July 21, 2023
Portfolio Management Process
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Portfolio management plays a crucial role in the journey of building wealth. Investopedia defines it as “the skillful and scientific process of choosing and supervising a collection of investments that align with the client’s, company’s, or institution’s long-term financial goals and risk tolerance.” However, this definition fails to clarify the specific objectives, the responsibilities of a portfolio manager, and how they differ from bank relationship managers. In this blog, we will explore these aspects of the portfolio management process to provide a comprehensive understanding.

Objectives Portfolio Management Process

Maximize Returns:

  • Strategic Investment Themes: Portfolio management focuses on carefully selecting investment themes that have the potential to generate the highest possible returns over time. Thorough research, analysis, and evaluation of investment opportunities are conducted to identify assets with strong growth prospects.
  • Active Monitoring: Portfolio managers continuously monitor the performance of investments within the portfolio. They stay informed about market trends, economic indicators, and company-specific factors to identify opportunities for maximizing returns. Adjustments and reallocations are made as needed to capitalize on favorable market conditions.

Minimize Risk:

  • Risk Assessment: Portfolio managers assess the risk associated with each investment to ensure it aligns with the investor’s risk tolerance. They consider factors such as historical performance, volatility, market conditions, and industry trends to make informed decisions that balance risk and potential reward.
  • Diversification: Diversifying investments is a key risk management strategy. By spreading investments across different asset classes, sectors, and geographic regions, portfolio managers aim to reduce the impact of any single investment’s poor performance on the overall portfolio. Diversification helps to minimize risk and potential losses.

Achieve Specific Financial Goals:

  • Customized Approach: Portfolio management takes into account the investor’s specific financial goals, whether it’s saving for retirement, funding education, or purchasing a home. The investment strategy is tailored to meet these objectives, considering factors such as investment horizon, income needs, and risk tolerance.
  • Long-term Planning: Portfolio managers develop strategies with a long-term perspective, ensuring that investments are aligned with the investor’s timeline for achieving their financial goals. They focus on capital appreciation and income generation, adjusting the portfolio as the investor’s circumstances and goals evolve.

Diversify Investments:

  • Asset Allocation: Portfolio managers allocate investments across different asset classes, such as stocks, bonds, real estate, and alternative investments. This diversification helps to spread risk and potential returns across different market segments and investment types.
  • Sector and Geographic Diversification: Within each asset class, portfolio managers further diversify by investing in different sectors and geographic regions. This helps to reduce exposure to specific industry risks and regional economic fluctuations, enhancing the overall stability of the portfolio.

Rebalance the Portfolio:

  • Regular Assessment: Portfolio managers periodically review the composition and performance of the portfolio. They compare the actual allocation to the target allocation and identify any deviations.
  • Adjustments for Alignment: If the portfolio’s asset allocation deviates significantly from the target allocation or if the investor’s financial goals change, portfolio managers make adjustments to rebalance the portfolio. This involves buying or selling assets to realign the portfolio with the desired risk-return profile.

​​Tax Efficiency: Portfolio management incorporates tax-efficient strategies to optimize after-tax returns and minimize tax liabilities. This may involve utilizing tax-efficient investment vehicles, tax harvesting techniques, and maximizing tax-advantaged accounts to enhance wealth creation.

Portfolio Management Service

After employing a portfolio manager, it is important to establish a framework for ongoing communication, monitoring, and evaluation to ensure the effectiveness of portfolio management. Here are some key steps to consider:

  • Define Expectations: Clearly communicate your investment objectives, risk tolerance, and any specific requirements or constraints to the portfolio manager. This will help set the foundation for the manager’s decision-making process.
  • Regular Performance Reviews: Schedule regular meetings or reviews with the portfolio manager to discuss the performance of the portfolio. Assess whether the returns align with your goals and expectations. Evaluate the manager’s investment decisions, risk management strategies, and overall portfolio performance.
  • Communication and Transparency: Maintain open lines of communication with the portfolio manager. Discuss any changes in your financial situation, risk appetite, or investment objectives that may impact the portfolio. The portfolio manager should provide updates on investment strategy, market conditions, and any adjustments made to the portfolio.
  • Monitor Portfolio Activity: Stay informed about the portfolio’s holdings, asset allocation, and any significant changes made by the portfolio manager. Review transaction reports, portfolio statements, and performance reports to ensure transparency and track progress toward your goals.
  • Evaluate Risk Management: Assess how effectively the portfolio manager is managing risk. Review the risk management techniques employed, such as diversification, hedging strategies, and risk assessment processes. Evaluate whether the risk level aligns with your risk tolerance and if the manager is taking appropriate measures to protect the portfolio.
  • Revisit Investment Objectives: Periodically reassess your investment objectives and discuss any changes with the portfolio manager. This may involve adjusting the asset allocation, investment strategy, or rebalancing the portfolio to realign with your evolving goals.
  • Seek Additional Expertise: Consider engaging a third-party advisor or consultant to conduct periodic reviews or audits of the portfolio manager’s performance. This independent perspective can provide valuable insights and ensure the portfolio manager is meeting your expectations.
  • Evaluate Fees and Costs: Review the fees and costs associated with the portfolio management services. Assess whether the fees are reasonable based on the level of service provided and the performance of the portfolio.
  • Stay Informed: Continuously educate yourself about investment trends, market conditions, and economic factors that may impact your portfolio. This will allow you to actively participate in discussions with the portfolio manager and make informed decisions.

Portfolio Manager vs Bank’s Relationship Manager

You may have received multiple notifications from your branch manager urging you to choose their portfolio management scheme. However, it is recommended to consider a portfolio management agency for the following reasons:

  • Scope of Services: Bank relationship managers typically provide a wide range of financial services beyond investment management, such as banking, lending, estate planning, and insurance. They take a holistic approach to managing your financial affairs. Portfolio managers, on the other hand, primarily focus on investment management and optimizing your portfolio.
  • Specialization and Expertise: Portfolio managers often have specialized knowledge and expertise in investment strategies, asset classes, or market sectors. They may offer a more in-depth understanding of investment opportunities and can tailor strategies to meet specific investment goals. Bank relationship managers may have a broader understanding of financial services but may not possess the same level of specialization.
  • Access to Research and Resources: Banks typically have extensive research departments, providing bank relationship managers with access to in-house research, market insights, and investment recommendations. This can be an advantage in terms of comprehensive analysis and access to resources. Portfolio managers, depending on their affiliations or networks, may have access to external research sources or collaborations.
  • Independence and Objectivity: Portfolio managers, especially those working independently or for specialized firms, can offer an independent perspective and avoid conflicts of interest associated with promoting in-house financial products. Bank relationship managers may have an incentive to promote the bank’s proprietary products, potentially creating a conflict between their advice and your best interests.
  • Personalization and Accessibility: Portfolio managers often work with a limited number of clients, allowing for more personalized attention and direct access to the manager. Bank relationship managers may have a larger client base, potentially limiting their availability and ability to provide individualized attention.
  • Regulatory Oversight and Investor Protection: Banks are subject to strict regulatory oversight and have investor protection measures in place, providing a certain level of security. However, this may vary depending on the jurisdiction and specific bank. Portfolio managers may be regulated by different bodies or have affiliations with industry organizations that offer investor protection.
  • Fee Structure: Fee structures can vary between bank relationship managers and portfolio managers. Banks may have set fee schedules, while portfolio managers often negotiate fees based on the services provided. It’s important to understand the fee structure, including management fees, performance fees, and any additional charges, to assess the cost-effectiveness of the services.



The primary aim of the portfolio management process is to ensure both capital protection and appreciation. It involves maximizing returns, ensuring tax efficiency, diversifying investments, and balancing funds. To maintain a healthy portfolio that aligns with their financial planning goals, investors must diligently manage their investments. Given the complexity involved, portfolio management is best handled by experts.

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