Asset Management: What to know about this fast-growing industry that could increase your wealth

Asset Management: What to know about this fast-growing industry that could increase your wealth
Asset management is a booming business, with about $110 trillion of assets under management globally. FG Trade/Getty
  • Financial asset management is the business of managing money to achieve clients' financial goals.
  • Asset managers work with individuals, government entities, companies, or institutional investors.
  • Not all asset managers follow fiduciary standards, but they must if they register with the SEC.

Asset management is a huge business that has been growing fast. In 2020, there were about $110 trillion of assets under management by professionals globally, up 40% from five years earlier, according to PwC. Asset managers make investment decisions that aim to increase wealth while concurrently managing risk.

In financial asset management, there are two overarching goals: increasing wealth and keeping risk appropriate. The amount of risk depends on client comfort level. The professionals who provide this type of service go by titles including wealth manager, registered investment adviser (RIAs), investment manager, portfolio manager, and others.

If you're thinking about hiring an asset manager, here's a summary of what they do, the different types of asset management, and how to find the right one for your money:

Understanding asset management

Asset managers typically offer their services to a specific set of clients: wealthy individuals, corporations, governments, or institutional investors. They usually allow for more diversification than an investor would be able to get acting on their own. Some asset managers work independently, and others work for a financial institution like a bank or an asset-management company.

The types of financial assets they manage include:

  • Stocks
  • Bonds
  • Commodities
  • Mutual funds
  • Index funds
  • Private equity
  • Hedge funds
  • Managed futures
  • Real estate

The asset-management process varies based on the manager, but there are several common elements. First, the asset manager and the client meet to assess the client's comfort with risk, as well as the types and amounts of assets the client will deposit. They also discuss the roadmap to the client's financial goals.

When the account is established, the asset manager then researches market trends and financial documentation from corporations to figure out which securities to buy. After the initial purchases, the manager maintains the accounts by trading poor-performing securities for promising ones.


What are other types of asset management?

If an asset has value, it needs to be managed. Here are several kinds of asset management outside of the financial world.

  • Digital asset management (DAM): A digital platform or software that allows users to organize, store and share digital assets like photographs and presentations
  • Fixed asset management: A system that allows users to track their fixed assets, which are tangible items like machinery, computers, or buildings to become more efficient
  • IT asset management (ITAM): A system that allows users to employ, monitor and dispose of IT assets like software, hardware, or computers to ensure the assets are functioning properly and the technology remains current
  • Enterprise asset management: A series of processes that allows a company to track maintenance on its physical assets like machinery and equipment
  • Infrastructure asset management: Tools and strategies that track maintenance for critical infrastructure like nuclear reactors and public drinking water systems

The role of a financial asset manager

While there are various types of financial asset managers, they're usually specialists hired by a client to administer, maintain, and oversee their cash and securities. Many also work with clients in a more holistic way.

"We don't hold ourselves out to be accountants, lawyers, or financial planners," says Lamar Villere, a partner and portfolio manager at Villere & Co. in New Orleans. "But generally, what often happens is we'll take the role of quarterbacking those relationships for somebody."

Asset managers registered with the Securities and Exchange Commission (SEC) or with their state have a fiduciary duty. That means they're legally required to act in their clients best financial interest, not their own.

"I think that there's a lot of mistrust that people have of financial services," says Nicole Renaux, a wealth advisor at Pioneer Wealth Management Group in Austin, Texas. "It's really nice to be able to take that concern off the table so that clients can receive the best advice available."

If you do hire an asset manager, it's important to make sure they're acting as a fiduciary. Don't just assume that they are based on their title.


Quick tip: To find whether or not your asset manager is a fiduciary, you can look them up on the SEC's website. Search through the Investment Adviser Public Disclosure database to ensure they're registered with the SEC.

There are several types of asset managers that are helpful to understand. They include:

  • Registered Investment Advisors (RIAs). An RIA must register with the SEC or state if they have more than $100 million in assets under management. Fees from an RIA can be a percentage of the total assets or a flat fee.
  • Investment brokers. An investment broker can be an individual or firm that acts as the investing intermediary. Investment brokers' commissions come from fees placed on each traded stock, a maintenance fee, or by selling proprietary products. They don't have a fiduciary duty.
  • Financial advisers. A financial adviser can buy and sell securities for their clients, as well as offer recommendations on things like insurance and taxes. They may or may not have a fiduciary duty.
  • Financial planners. A financial planner is a type of financial adviser who provides a more holistic view of their clients' finances. They discuss topics like savings, money management and investing. Some are fiduciary. Their fees vary - it may be hourly, fixed, or a percentage based on total assets.
  • Robo-advisors. A robo-advisor can be more affordable than a dedicated investment manager. This service collects information on your investing style and financial goals and then manages your money using an algorithm - with almost no human intervention.

It's also an option to work with an asset management company (AMC). They create pooled investment funds like mutual funds or exchange-traded funds for investors to buy into. The funds they create are either public or private - with private ones usually being higher risk, less regulated and limited in terms of who is able to invest.

Asset managers offer various fee structures, so be sure to check what you'll be charged before working with someone. The most common fee types are:

  • Brokerage fees
  • Fund management fees
  • Financial management fees
  • Managed account fees
  • Small interest rate based on asset total
  • Percentage of shared profits
  • Administration fees

Quick tip: Check to see if your asset manager lists the fees they charge on their website. This practice shows that the asset manager is transparent and open about what they charge for their services, which is always a good sign.


The financial takeaway

If handling your own money is overwhelming, an asset manager can help organize your assets and grow your wealth. But make sure they're playing on your team. Search the SEC's website to make sure they are registered, and therefore a fiduciary. You can also make sure no court judgments or orders have been issued against them.

Finally, discuss any fees before agreeing to work together to make sure you aren't overpaying. Even a fraction of a percent more can cost you a lot over time.

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