Asset management is a giant business. In 2019, the top 500 largest asset managers worldwide oversaw 104,4 $ trillion worth of assets, according to Thinking Ahead Institute by Willis Towers Watson.
The term asset management may seem way beyond your world. But asset management is a financial service that can benefit both those with small and huge net worths.
Asset Management Definition
Managing a client’s money means identifying a client’s financial goals and working to accomplish those goals via portfolio management—buying and managing stocks, bonds and funds.
Asset management clients can range from regular people to nonprofit organizations and public companies large and small. Similarly, companies that provide asset management services can be huge corporations or one-person operations.
What Is an Asset Manager?
An asset manager is a financial professional who manages money and securities on behalf of a client, with the goal of growing the value of the assets. Asset managers are known by many names: investment advisors, financial advisors, wealth managers, institutional wealth managers, registered investment advisors (RIAs), robo-advisors and stockbrokers.
Caroline Hill, a wealth manager at Sage Rutty Inc., a financial services company based in Rochester, N.Y.,breaks down the different asset managers that cater to regular investors as follows:
- Registered Investment Advisors
A RIA is an individual or firm that’s legally committed to keeping the client’s best interest in mind when providing investment advice and management. RIAs are compensated with annual fees rather than sales commissions.
- Investment brokers
An investment broker is a registered individual or firm that’s compensated via sales commissions for transactions, such as buying and selling investments
- Financial advisors
Advisors work with clients to establish financial goals and build an investment portfolio best suited to accomplish those goals
There is no regulation around who can call themselves a financial advisor; some may act like RIAs, and others may function as brokers. Be sure to ask potential financial advisors how they are compensated and if they are fiduciaries to determine if they have a legal obligation to put your best interest over their own.
According to Eric Alexander, a financial advisor with Benchmark Income Group in Richardson, Texas, three fundamental tasks handled by an asset management company include:
- Providing everyday investors with access to institutional money managers, even when they don’t necessarily have institutional-level money
- Serving as specialists in their market segment so they can make any appropriate changes to a client’s portfolio, if necessary
- Offering a platform for other financial advisors to meet their client’s needs and goals
Individual financial advisors may partner with asset management companies to gain access to a larger, more specialized team to help manage a client’s investment plans
How Much Does Asset Management Cost?
Costs vary for asset managers and asset management strategies. An active investing model will have greater costs than passive, index-based investing model.
Here’s how the most common asset management costs break down:
- Active investment management fees
These fees can vary, depending on the asset manager and the amount of assets in an investment portfolio. Typically, asset managers charge a 1% annual fee.
- Active investment management fees
These fees can vary, depending on the asset manager and the amount of assets in an investment portfolio. Typically, asset managers charge a 1% annual fee.
- Passive management fees
Asset managers who use a passive investment model, meaning they place client money in index funds that mirror major benchmarks, like the S&P 500, cost less on an annual basis. Common passive management fees range between 0,20% and 0,50% on an annual basis.
- Robo-advisor management fees
Asset managers at so-called robo-advisor investment firms use algorithms to manage client portfolios instead of humans. Typical annual asset management fees for robo advisors range between 0,25% and 0,50% of managed assets on an annual basis. This works out to 250 $ to 500 $ per year for a 100,000 $ portfolio.
- Brokerage fees
Investment brokers who make trades on behalf of a financial client may charge a per-trade transaction fees, which can be as low as zero (for online trades) and as high as 50 $ per trade, depending on the broker and the type of service provided
- Additional fees
Asset managers may also charge annual account fees, ranging from between 25 $ and 100 $ annually. If a client closes an account, an asset manager may charge a closing fee ranging from 25 $ to 150 $ per account.
Keep in mind, if you use a professional asset manager, you may not actually use any one model exclusively. Sometimes the advisor may use a more passive manager for a portion of the assets and a high feature management company for a different portion of the assets in order to keep overall costs down and maximize the value for the services and performance.
Asset Management and You
Your financial goals can be different: from a college fund, a new home to eventually retirement.
Since an asset manager understands your goals, resources and constraints, working with them can help your investments earn more and assists you in reaching your financial goals sooner.
Make sure you pick an asset manager who meets your unique needs.
It is important to understand the types of investments your advisor is going to use and the potential risks and rewards you could see Ensure you know how your advisor gets paid and if they have any personal conflicts with managing money for you.
If your net worth is not high, paying someone to manage your money may seem unreasonable. But people often don’t have the time or the desire to manage their asset on their own, while an asset manager, even not too well paid now, can help you with making big profits in the future.