Asset managers help manage their clients’ money, typically managing an individual’s or institution’s investment portfolio, with the goal of building or maintaining wealth. Typically, asset managers work within the context of their clients’ goals to deliver investment returns that help achieve those goals, while aiming to mitigate risk.
Asset managers may be professionals or companies. They are typically fiduciaries, an industry designation which means they must put their clients’ best interests ahead of their own.
Understanding how asset management works and how it might benefit your long-term plan can help you decide whether this service is right for you, or whether another type of financial professional might be a better fit.
What Is Asset Management: The Basics
Asset management is a financial service offered by licensed individuals or companies. The aim of asset management is to build or maintain a client’s wealth, typically through portfolio management. Although asset management is commonly available to high-net-worth individuals, some professionals may serve a wider population.
Asset managers choose what investments to buy, sell, or avoid entirely. And they make recommendations based on what they think will help their client’s portfolio grow safely. Asset managers are trained to consider their investment choices in light of a client’s long-term goal or plan — whether they are an individual or institution — and manage potential risk factors as well as tax consequences.
In addition to trading traditional and alternative securities, such as stocks, bonds, real estate and private equity, asset managers may also offer services not usually available to private investors such as first access to initial public offerings (IPOs).
Asset managers may also allow their clients to take advantage of other less common investment strategies. For example, they may let an investor borrow against the securities in their portfolio if there are other investment opportunities that require quick cash.
They may also offer their clients other services like bundled insurance policies or estate planning, legacy planning, giving strategies, and more.
To make managing and monitoring their accounts easier, clients may consolidate all of their accounts — including checking, savings, money market, and investment accounts — into one asset management account. These accounts provide one monthly statement to help clients keep track of their financial activities, and may provide other benefits such as automatic periodic investment.
Asset management accounts are relatively new: The government first allowed them just over 20 years ago. In 1999, the Gramm-Leach-Bliley Act overrode the Glass-Steagall Act of 1933, which banned firms from offering banking and securities services at the same time. The Gramm-Leach-Bliley Act permitted financial services firms to offer brokerage and banking services, and the asset management accounts were born.
What Is an Asset Manager?
The term “asset manager” is just one of many terms in the financial industry that refer to professionals or companies that manage a client’s wealth. Asset managers may also be referred to as investment advisors, financial advisors, wealth managers, registered investment advisors (RIAs), and more.
Generally speaking, though, what distinguishes an asset manager from, say, a stock broker or brokerage house is that they are legally Registered Investment Advisors (or RIAs). An RIA differs from a broker, and potentially from some financial advisors, in that she or he is a fiduciary, and an asset management company is considered a fiduciary firm. That means they can execute investment trades on their clients’ behalf, and they are legally obligated to put their clients’ interests first.
In terms of what an asset manager goes: They must take a two-pronged approach to managing their clients’ assets. They have to consider ways to grow the portfolio and continue to build the client’s wealth. At the same time, they have to manage risk in order to limit potential losses.
Obviously, this is the aim of many investors as well. But most investors aren’t trained in the technicalities of choosing investments, maintaining (or adjusting) a portfolio’s asset allocation, and analyzing how certain strategies may or may not support a client’s goals. For this reason, working with a professional asset manager makes sense for a number of people.
Hiring an asset manager means trusting someone who can execute your financial mandate. These mandates may include instructions on a client’s goals and priorities, what benchmarks may be used to measure success, and what types of investments should be prioritized or avoided. For example, an environmental organization might avoid stocks or funds that include petroleum companies, or an individual concerned about corporate responsibility might target funds that prioritize good corporate governance.
How Much Does an Asset Manager Cost?
Investors should pay special attention to how an asset manager gets paid, as their compensation structures can be complicated.
Before hiring an asset manager, an investor should feel comfortable asking for a copy of their fee structure. Individual Advisory Representatives (IAR), which most asset managers are, are required by the Securities and Exchange Commission (SEC) to file a Form ADV that includes information such as the manager’s investment style and assets they manage, among other things.
Fee based on a percentage of assets
Many asset managers charge an annual fee based on a percentage of the value of an account. These fees may vary depending on the size of the portfolio. For example, larger portfolios may be charged lower fees than smaller portfolios. Or, some asset managers may offer tiered-fee systems that assign different costs to different asset levels. For example, managers may charge one fee portfolios up to $250,000 and a slightly smaller fee for $250,000 to $1 million, and so on.
Asset managers may also earn commissions on other products or services they offer, such as insurance policies. Or they may do a combined fee structure. It’s common to ask an asset manager if they accept commissions for any products they might sell, even if they also charge an annual fee.
Other asset management firms are fee-only, meaning they don’t collect commissions on specific products, and only make money from the management fees they charge their clients. A fee structure like this may make investors feel more confident that their asset manager is choosing investments and products that are appropriate to their investment strategy, rather than choosing products because they carry higher commissions.
The Importance of Asset Managers
All investors are seeking the best ways to manage their portfolios. They hope to employ the right strategies that may help achieve their goals, build wealth, and avoid risk when possible. In some cases, individuals can accomplish these aims on their own, but in many cases it’s beneficial to have an asset manager who is trained in these skills. An asset manager can:
• Help identify investments that align with an investor’s financial goals
• Build a portfolio and set up an asset allocation that suits an investor’s risk tolerance and risk capacity
• Manage the portfolio over time, adjusting to their clients’ changing priorities
• Be responsive to market conditions
• Adhere to fiduciary standards and responsibilities in putting their clients’ best interests ahead of their own.
Given the multitude of uncertainties investors can face over a lifetime, it may be wise to invest in working with an asset manager.
Though asset managers are known by many names (e.g. wealth advisor, financial advisor, RIA), they are typically professionals or firms that work with individuals or institutions to manage their money. An asset manager is entrusted with choosing the investments that can help their clients build wealth, while at the same time mitigating risk factors that might lead to losses. Typically, an asset manager is an RIA — or registered investment advisor — which not only means they’ve met certain industry standards, but they are also considered a fiduciary: They are legally obliged to put their clients’ best interests above their own.
Should you work with an asset manager? Although many asset managers work with high-net-worth individuals (or larger organizations such as corporations and universities), it’s possible to get guidance and portfolio management skills at a range of asset levels. Either way, you can begin your own investment journey by opening an account with SoFi Invest®, where anyone from seasoned investors to eager beginners start building a diversified portfolio today. A SoFi Invest account allows investors to start with as little as $5. Members can trade stocks and ETFs, as well as cryptocurrencies. And SoFi Members have access to complimentary financial advice from a professional.
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