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Investment management is a very competitive business with many different types of service providers. Increasing numbers of financial and nonfinancial companies now declare savings and investment products and services to be their core competence. A number of factors have made investment management one of the fastest growing and competitive businesses in the financial services industry. These factors include tremendous growth in assets under management, the globalization of capital markets, the proliferation of investment alternatives, changes in client demographics and relationships, and rapid technological advancements.The attraction to this business is profitability. In some segments of the investment management business, pretax operating margins often surpass 25Investment Management Services2Comptroller’s Handbookpercent. Institutional retirement and investment company accounts are typically the most profitable. The personal wealth management business generates somewhat lower, but still attractive, pretax operating margins. This line of business requires a higher level of personalized service, and the accounts are usually smaller than on the institutional side. Personal wealth management is also one of the fastest growing segments of the industry.The primary challenge for service providers has been to keep pace with changes in the industry. Investments have taken on new forms in response to changes in investor characteristics and demands, financial regulation, political environments, and technological abilities. While investors and their portfolio managers, or advisers, still concentrate on traditional investments vehicles, such as publicly traded stocks and bonds, an increasing number of investment alternatives, such as real estate, hedge funds, and other unregistered private investments, are used as a means of enhancing a portfolio’s risk-return relationships.The investment management industry is in transition, and though it offers the opportunity for significant, recurring fee income, effectively managing the business’s risks poses tremendous challenges.Portfolio Management and Advisory ServicesNational banks provide investment management services to clients with differing characteristics, investment needs, and risk tolerance. A bank is usually paid a percentage of the dollar amount of assets being managed in the client’s portfolio. If an account’s total assets are below a minimum, it often pays a fixed fee. Other factors in the amount of fees are an account’s complexity and other banking relationships. Some banks have advisory agreements that base compensation on performance. In this type of arrangement, the portfolio manager, or adviser, receives a percentage of the return achieved over a given time period.National banks manage and provide advice on all types of assets for their clients. Besides managing portfolios of publicly traded stocks and bonds, national banks also manage and provide advice for portfolios that include a broad range of investment alternatives such as financial derivatives, hedge funds, real estate, private equity and debt securities, mineral interests, and art. Refer to the Comptroller’s Handbook for Fiduciary Activities for information on individual investment categories and related risk management processes.Comptroller’s Handbook3Investment Management ServicesInvestment management services are provided in two primary types of accounts: separately managed accounts and commingled or pooled investment funds. Two types of pooled investment funds are collective.