DEFINTION: Asset management involves the purchase and trading of assets for clients. The goal of this trading is the preservation and increase of the assets.
Asset management companies provide their services to affluent individuals or families, as well as to major banks and institutional investors.
Individuals offering asset management services are often referred to as “financial advisors” or “portfolio managers.” Such advisor and managers may operate independently or be employed by a financial establishment like an investment bank.
ETYMOLOGY: “Asset” is from Anglo-French asetz—meaning a quantity of property sufficient to pay a debt—via Old French assez (enough) and ultimately Vulgar Latin ad satis.
“Management” is from Italian verb mannegiare, which derives from the noun mano, which in turn derives from Latin manus, both meaning “hand.”
USAGE: The twin objectives of asset management are augmenting worth and limiting risk.
The foremost consideration is the client’s risk appetite. For example, a retired person subsisting on his portfolio income, or a pension fund manager supervising retirement assets, should proceed in a risk-averse manner.
On the other hand, younger or more-adventurous individuals may be more comfortable with a riskier investment strategy.
However, most individuals fall somewhere in between these extremes. This means that the asset manager’s task is to pinpoint each client’s specific risk comfort level.
It is upon this determination that the selection of particular investment options, such as stocks, bonds, real estate, commodities, mutual funds, and others, depends.
In order to carry out these tasks successfully, asset managers must carry out comprehensive research utilizing both macro and microanalytical resources. This implies the statistical scrutiny of current market conditions, the analysis of corporate financial records, and anything else that could contribute to the primary objective of enhancing the value of the client’s assets.
There exists a variety of different types of asset managers, each characterized by the kind of asset they manage and the degree of service they offer, including, but not limited to, registered investment advisors, investment brokers, and financial advisors.
Asset managers may employ different pricing structures. The prevalent model charges a percentage of the managed assets, with the industry average hovering around one percent for portfolios up to $1 million, and decreasing for larger portfolios.
Other asset managers might impose a fee for every trade executed, while certain managers might even earn a commission for selling additional securities to their clients.
For affluent clients, financial institutions may provide additional services, such as check-writing privileges, credit cards, debit cards, margin loans, and brokerage services to account holders.
The advantage of such services to account holders is that all their banking and investment necessities can be fulfilled by a single entity.