Asset management is all about helping people grow their wealth while managing risks. It’s a strategy where professionals, like financial advisors or portfolio managers, make decisions for clients, buying and selling investments that match their risk tolerance and long-term goals. They handle all the small details, watching the market closely to make sure the portfolio does as well as it can.
The ultimate goal of asset management is to increase the value of the investment over time without taking on more risk than the client is comfortable with. Whether you’re saving for retirement or looking to grow your money, asset management helps you make better decisions.
How Asset Management Works
Asset management starts by understanding the client’s goals and risk tolerance. Some people are risk-takers, eager for high returns even if that means more uncertainty. Others prefer to play it safe, focusing on steady, long-term growth. The asset manager’s job is to find that balance and then invest in different types of assets like stocks, bonds, real estate, or mutual funds.
Managers look at the big picture (macro trends like the economy) and the small details (specific companies or sectors). This research helps them decide where to invest the client’s money. It’s a mix of experience, strategy, and market analysis, all to achieve steady growth.
Types of Asset Managers
Asset managers come in different forms, each with a unique role and level of responsibility.
- Registered Investment Advisors (RIAs): These advisors manage client portfolios and are closely regulated. They must register with the SEC if they manage over $100 million in assets.
- Brokers act as middlemen, buying and selling investments for their clients. However, brokers may not always have a fiduciary duty, so it’s important to research carefully.
- Financial Advisors: These professionals recommend investments and may also manage portfolios. Some are fiduciaries, but not all, so always ask.
- Robo-Advisors: These automated systems manage your portfolio based on your goals and risk tolerance. Since there’s no human involved, robo-advisors are usually a cheaper option for those who want basic investment management.
What Does It Cost?
The cost of asset management depends on the manager’s fee structure. Most charge a percentage of the assets under management (AUM), often around 1% for portfolios up to $1 million. More extensive portfolios can often get lower rates. Some managers might charge a fee for every trade, and others might receive commissions for certain investment products they sell.
If you’re hiring a professional, ask if they are a fiduciary. Fiduciaries are legally required to act in your best interest, which helps avoid conflicts of interest, like pushing investments that benefit them more than you.
How Do Asset Management Companies Work?
Asset management companies cater to individuals and institutions alike. They don’t just pick investments but also offer broader financial services, like credit and debit cards or margin loans. Many asset management companies operate under large financial institutions, offering a one-stop shop for banking and investments. For example, a company like Merrill (formerly Merrill Lynch) provides a cash management account (CMA) that offers financial advisory services and access to banking options like ATM withdrawals and check-writing privileges.
A key benefit of working with an asset management company is having a dedicated advisor who monitors your portfolio closely and adjusts it as needed based on market trends and personal changes in your financial life.
Example: Merrill’s Cash Management Account (CMA)
Merrill’s CMA is a perfect example of how asset management companies provide more than just investment advice. This account gives clients access to personal advisors and investment opportunities, including foreign currency transactions and IPOs. It even offers practical perks, like check-writing and fee-free ATM access.
With over $250,000 in assets, account holders can avoid fees and enjoy premium services like higher interest rates on cash deposits. These accounts make it easy for investors to manage their banking and investment needs under one roof.
Types of Asset Management
Asset management isn’t one-size-fits-all. It’s applied across many industries, from financial markets to physical infrastructure:
- Financial Asset Management: This is the most common form, where professionals manage money by investing in stocks, bonds, mutual funds, etc. Some active managers continuously buy and sell to outperform the market, and passive managers track a market index.
- Physical Asset Management: This type focuses on managing physical assets like buildings, machinery, or infrastructure. It includes everything from building the asset, maintaining it, to eventually retiring it. Companies managing renewable energy plants (solar parks or wind farms) are a good example.
- Software Asset Management (SAM): In the IT world, SAM involves managing software licenses, making sure the company complies with legal and financial obligations, and optimizing costs.
- Enterprise Asset Management (EAM): Large organizations use a more complex system to manage assets spread across different locations. It combines asset inventories with maintenance schedules and performance monitoring to ensure smooth operations.
FAQs
What exactly does an asset manager do?
An asset manager decides where to invest their clients’ money based on their goals and how much risk they can handle. They constantly monitor the portfolio and make necessary changes to keep it on track.
How much does asset management cost?
Most asset managers charge a percentage of their assets, typically around 1%. Some charge per trade or receive commissions for selling certain investments. Always ask if they are fiduciary, meaning they are required to act in your best interest.
What’s the difference between a broker and an asset manager?
A broker buys and sells investments on your behalf but may not actively manage your portfolio or act in your best interest. An asset manager is responsible for the entire portfolio and often has a fiduciary duty to the client.
Can I manage my assets myself?
You can manage your investments, but it takes time, research, and a good understanding of the market. Many people hire asset managers or use robo-advisors to make the process easier.
What is a robo-advisor?
A robo-advisor is an automated system that builds and manages your investment portfolio. It uses computer programs to adjust your investments according to your goals and risk level, providing a cheaper option than human advisors.
