Asset management is the practice of growing the entire wealth over a period of time by acquiring, maintaining and trading investments that have the prospect of increasing in value.
Asset management professionals help others with this service. Sometimes, they might also be called portfolio directors or fiscal counsels. Some of these professionals work individually, and others work for an investment bank or other financial institution.
An overview
Asset management adds value and alleviates risk. The customer’s forbearance for risk is studied first. For example, a retiree living on income from a pension fund will be reluctant to take risks. On the other hand, a young person will most likely be willing to try out high-risk investments that have the potential to get high returns.
If you think about it, nearly all of us may possess both mindsets mentioned above. Asset managers analyze our mindset, risk tolerance and financial goals to suggest what investments to make and avoid. These investments can include stocks, bonds, real estate or alternative investments.
The asset manager will perform research using macro and microanalytical tools. This comprises statistical analysis of overall market trends, reviews of corporate financial documents and anything else that will benefit in reaching the client’s desired goal.
The working style of asset management companies
Asset management companies serve the investment interests of high-net-worth people and institutions. Accounts maintained by financial institutions frequently include credit cards, margin loans, check-writing privileges, debit cards and brokerage services.
When people deposit money, it’s placed into a money market fund that offers more returns with competitive interest rates rather than a standard savings account. Some of the funds are backed by the Federal Deposit Insurance Company (FDIC) finances and the rest are non-FDIC funds. Account holders can choose between them. The same institution could meet all of these banking and investing essentials.
All of this is possible only after the Gramm-Leach-Bliley Act in 1999 – it replaced the Glass-Steagall Act. The Glass-Steagall Act of 1933 was passed during the Great Depression. The Glass-Steagall Act forced a separation between banking and investing services. Today, these companies just need to maintain a “Chinese wall” between the divisions.
Cash Management Account (CMA) and financial advisors fulfill the requirements of customers looking for banking and investment services. The cash management account connects you with a personal financial advisor who would offer personalized advice and investment options.
The interest rates are tiered for the cash deposits. Deposit accounts can be linked, and all eligible funds can be aggregated to get a reasonable rate. Securities in the account will be under Securities Investor Protection Corporation (SIPC). The SIPC doesn’t protect the investor assets from inherent risks but protects them from the financial failure of the brokerage establishment itself.
Along with usual check writing services, the account also gives access to Bank of America ATMs anywhere in the world without any fee. Services like bill payment services, fund transfers and wire transfers are also available.
Asset management company vs. brokerage
Asset management institutions are fiduciary firms, which means that the customer will give discretionary trading authority over the accounts. The company is legally required to work faithfully on the client’s behalf.
Brokers execute a trade only after getting the permission of clients. Some online brokers allow clients to make their own decisions or initiate their own trades.
However, asset management firms usually cater to the wealthy and also have higher minimum investment thresholds than brokerages. These firms charge fees rather than commissions.
On the other hand, brokerage firms are open to serving any investor and are legally obliged to manage the clients’ funds in line with the client’s interests and financial goals.
The role of the asset manager
An asset manager first meets with a client to understand the client’s long-term financial goals and how much risk one can take to reach the goal. After understanding that, the manager will propose a set of investments that are close to the client’s objectives.
The asset manager is also responsible for creating the client’s portfolio, managing and observing the portfolio every day, making needed changes and finally communicating the changes to the client.
Here are some reliable asset management institutions
- Fidelity Investments
- Black Rock
- UBS Group
- State Street Global Advisors
- The Vanguard Group
