Table of Contents
- What Is Asset Management?
- Key Takeaways
- Understanding Asset Management
- Types of Asset Managers
- Cost of Asset Management
- How Asset Management Companies Work
- Example of an Asset Management Company
- How Does an Asset Management Company Differ From a Brokerage?
- What Does an Asset Manager Do?
- What Are the Top Asset Management Institutions?
- What Is Digital Asset Management?
- The Bottom Line
What Is Asset Management?
Let me explain asset management directly: it's the practice of investing money on behalf of clients to grow their wealth over time, based on a plan that matches their risk tolerance and financial goals.
You might hear asset managers referred to as portfolio managers or financial advisors. Some operate independently, while others are part of big firms like BlackRock or Fidelity. And don't forget robo-advisors—they're the automated version of this service.
Key Takeaways
Here's what you need to know: the main aim is to maximize your investment portfolio's value while sticking to a risk level you're comfortable with. Clients range from everyday individuals to governments, corporations, and big investors. Remember, asset managers have a fiduciary duty—they must act in your best interests.
Understanding Asset Management
Asset management targets two things: boosting value and cutting risk. I'll tell you right away that one of the first questions I consider with clients is their risk tolerance.
If you're a retiree relying on portfolio income or managing a pension fund, you should avoid high risks. But if you're young or aggressive, you might go for riskier options. Most people are somewhere in the middle, and as an asset manager, I pinpoint that spot to choose investments that fit your goals without exceeding your risk limits.
The options include stocks, bonds, real estate, commodities, alternative investments, and mutual funds, among others. This involves deep research—statistical analysis of market trends, reviewing corporate docs, anything that helps appreciate your assets.
Types of Asset Managers
You should know there are different types of asset managers, based on what they handle and the service level. Each has specific responsibilities, so understand them before investing.
A registered investment adviser (RIA) advises on trades and manages portfolios, regulated by the SEC for over $100 million in assets. Brokers act as intermediaries, buying securities and holding assets, but they aren't always fiduciaries—research them carefully. Financial advisors recommend and handle investments, possibly specializing in taxes or estates, and they may or may not be fiduciaries. Robo-advisors are algorithms that build and adjust portfolios automatically, costing less since no humans are involved.
Cost of Asset Management
Asset managers charge in various ways. Typically, it's a percentage of assets under management—around 1% for up to $1 million, lower for bigger portfolios. Some charge per trade or get commissions for selling products.
Know if your firm is a fiduciary; otherwise, they might push unsuitable investments. The new Retirement Security Rule mandates fiduciary status for retirement advice, putting your interests first.
How Asset Management Companies Work
These companies compete to handle investments for individuals and institutions. At banks, you get perks like check-writing, cards, loans, and brokerage. Deposits go into money market funds for better returns, protected by FDIC up to $250,000—but not for investments like mutual funds.
This setup came after the 1999 Gramm-Leach-Bliley Act replaced Glass-Steagall, allowing banks to mix banking and investing with a 'Chinese wall' between them.
Example of an Asset Management Company
Take Merrill's Cash Management Account: it combines banking and investing with access to advisors, IPOs, foreign currencies, tiered interest, SIPC protection, ATMs, bill pay, and apps. Over $250,000 avoids certain fees.
How Does an Asset Management Company Differ From a Brokerage?
Asset managers are fiduciaries managing significant assets with trading authority, bound to act in your best interest. Brokerages facilitate trades but don't always manage portfolios or act as fiduciaries.
What Does an Asset Manager Do?
I create your portfolio, oversee it daily, adjust as needed, and keep you updated on changes and goal progress.
What Are the Top Asset Management Institutions?
As of February 2024, leaders by AUM are BlackRock ($9.46 trillion), Vanguard ($7.25 trillion), Fidelity ($3.88 trillion), Capital Group ($2.5 trillion), and Amundi ($2.1 trillion).
What Is Digital Asset Management?
Digital asset management stores media like audio or video in a central spot for organizational access—it's not about financial assets.
The Bottom Line
Asset management firms handle buying, selling, and managing assets for clients. They serve family offices, wealthy individuals, banks, and institutions—choose based on your needs.
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