What is Asset Management?

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Definition:

Asset management is a service that investment firms and banks can provide to manage individual and corporate assets in a manner consistent with the investment policy.

🤔 Understanding asset management

Asset management is when you hire a financial institution, such as an investment firm or a bank, to direct and manage your investments. Asset management can serve many purposes for individuals and corporations. A primary goal of putting your assets in the hands of someone else is to gain the advantage of their industry expertise. Asset managers can specialize in certain types of capital, and your risk tolerance and objectives can guide the strategies they put into place. Asset management firms can offer investment services and products you might not have access to as a regular investor. Investment banking and wealth management services are closely related to asset management. While wealth management can include asset management, investment banking helps individuals and organizations raise capital.

Example

If you had $1 million in investable assets, asset management could help you manage your money in line with your long-term goals. You could go to an asset manager, who would set up an account for you and invest in different assets based on your risk tolerance and goals for growing the money. Typically, a firm or individual managing your assets will charge a fee for this service. This can either be a flat fee or a percentage of the account balance they are managing.

Takeaway

Asset management is like hiring a personal trainer for your finances…

They have expertise that can help you get your finances in better shape like a personal trainer does for your body — but you’re also paying a premium for something you could do on your own.

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What is asset management?

Asset management is a financial service that works to manage an investor’s capital according to their risk tolerance and objectives. These objectives vary such that the resulting investments can be geared towards building wealth (i.e. ‘growth’) or for some it is to maximize income or others protecting their capital. Whatever the objective, this is done with a requisite plan to manage risks in alignment with the varying objectives. Asset management companies hold, buy, and sell your investments keeping your portfolio in line with your objective.

Asset management is highly regulated by the Securities and Exchange Commission (SEC). The regulatory body has a comprehensive list of laws, rules, and regulations that these asset managers must follow. For instance, there are specific laws against insider trading. Sharing information with investors that is misleading or simply isn’t true is another type of violation. The SEC can bring civil and criminal actions against asset managers or their companies if they break any of the laws.

What is an asset manager?

An asset manager provides investment management services by investing and monitoring your individual assets or the assets of your business.

Even with a professional portfolio manager, however, there’s no guarantee that your investments will increase in value. Several factors can influence the performance of your finances. The health of the economy, the skill of the asset manager, and the fees you pay to your asset manager are some of the factors that can have an impact on your bottom line.

How do asset management companies work?

If you’re looking for help managing your wealth, you can contact a bank or investment firm to ask if asset management is an available service. Common items an asset management company can oversee are:

  • Stocks
  • Bonds
  • Mutual funds
  • Cash
  • Real estate
  • Master limited partnerships
  • Private equity investments

The company will work with you to set up a personalized approach to managing your personal or business assets. It may ask you questions about your income needs, tax situation, and your expectations for the future. Your moral and ethical values can also play a role in determining how the asset management company handles your portfolio.

For example, if you are an advocate of social responsibility and promote environmental awareness, your asset manager can direct your capital toward investments that align with your ideals.

What is asset management vs. investment banking?

While asset management can direct investments for an individual or a corporation, investment banking focuses solely on helping individuals and businesses raise capital. Investment bankers can also provide financial consultations to aid in decision-making and act as the intermediary to connect security issuers to potential investors when firms want to go public.

What is asset management vs. wealth management?

If you have a modest net worth, you might benefit from asset management. If you have a high net worth, you may wonder how to manage your assets over the long term. That’s where wealth management comes in.

While it can include some aspects of asset management, wealth management specifically caters to high-net-worth individuals. It involves formulating personalized planning sessions and tax strategies to manage risks better.

Wealth management usually requires that you meet a minimum investment amount. It’s common to require an investment of $250,000 to $500,000 to qualify for services.

How much does asset management cost?

Like most things in life, asset management services aren't free. Depending on the provider, you might pay a flat fee or be charged a commission.

Asset management companies can also have different fee structures for different types of accounts or services. An hourly fee for financial advice is common. For a complete review of your portfolio or an annual assessment of your financial plan, you could pay a flat-rate.

Your fund manager can also charge a fee based on a percentage of the transaction amount or total investment balance. Keep in mind that the fees you pay can have an impact on your bottom line.

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Ready to start investing?
Sign up for Robinhood and get your first stock on us.Certain limitations apply

The free stock offer is available to new users only, subject to the terms and conditions at rbnhd.co/freestock. Free stock chosen randomly from the program’s inventory.

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