Incentive-Based Investment Management: Maximizing Client Returns

The incentives approach is the best investment management system that encourages investment management professionals to base performance results on benefits for the client. It allows managers to achieve high returns and take on appropriate risk and maximize a portfolio’s profitability.

Incentives Approach

The incentives approach is based on a principle that behavior can be best predicted and controlled if based on rewards given for the achievement of goals. The more lucrative the incentive, the more inclined the investment manager will be to produce the desired result. This benefits the firm, their clients and the investment management professional. The incentives that are attached to this approach give the investment management professional guideposts to target when managing the investments for their clients.

Controls Within Incentive Approach

The system safeguards reckless behavior by creating systemic risk for the firm and their clients. The incentives can have various benchmarks and standards of conduct that requires the manager to behave in a manner that is prudent but takes advantage of market opportunities for the client’s benefit.