Asset managers help manage their clients’ money. They typically manage an individual’s or institution’s investment portfolio, with the objective of building or maintaining wealth. Asset managers usually work to deliver investment returns that help clients achieve their financial goals while aiming to mitigate risk.
These professionals are typically fiduciaries, an industry designation which means they must put their clients’ best interests ahead of their own.
Understanding how asset management works, the pros and cons, and the costs involved, can help you decide whether this service is right for you.
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 financial advisors may serve a wider population.
Asset managers choose what investments to buy, sell, or avoid. 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 goals or plan and manage potential investment risk factors as well as tax consequences.
In addition to trading traditional and alternative securities, such as stocks, bonds, real estate, and private equity, some asset managers may also offer services not usually available to private investors, such as first access to initial public offerings (IPOs).
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 less than 25 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 asset management accounts were born.
💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.
What Is an Asset Manager?
“Asset manager” is a term in the financial industry that refers to professionals or companies that manage clients’ wealth. Asset managers may also be referred to as investment advisors, financial advisors, or wealth managers.
Generally speaking, what distinguishes an asset manager from, say, a stock broker or brokerage house is that they are legally Registered Investment Advisors (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.
An asset manager 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 their goals. For this reason, working with a professional asset manager makes sense for a number of people.
Hiring an asset manager means trusting a professional to execute your financial mandate. These mandates may include instructions on your 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.
Here’s how asset managers may be paid.
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 for 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 a good idea 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 for them and their goals, rather than choosing products because they carry higher commissions.
💡 Quick Tip: Are self-directed brokerage accounts cost efficient? They can be, because they offer the convenience of being able to buy stocks online without using a traditional full-service broker (and the typical broker fees).
The Importance of Asset Managers
Of course 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 other 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 for some investors to consider working with an asset manager.
Though asset managers are known by many names (including 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.
So 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. But whether you work with an asset manager or not, you can still start saving and investing to help reach your goals and build financial security.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
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