Uncovering the Inner Mechanics of Asset Management Companies
The financial arena is peppered with literature on how to manage your assets. When you put together a portfolio of shares, forex, commodities, bonds, indices, and funds, those assets don't take care of themselves – they really need to be managed. Asset management companies are in the business of optimising the precise asset allocation mix in your portfolio, managing your assets for maximum yield, and suggesting viable investment opportunities to grow your financial portfolio.
The complexities of managing portfolios are often lost on everyday investors, given the buffet of options that are available, the impact of macroeconomic variables on your investments, and the timing needed to make the best possible investment decisions. The purpose of an investment is to achieve long-term appreciation and growth of the underlying assets.
Asset management companies can make much better investment decisions for their clients than individual investors themselves by dint of the fact that they have lots of clout in the financial world. They manage the assets of high net-worth individuals, and they can easily access high-value options with high-growth prospects. By suggesting a variety of funds for their clients, asset management companies can mitigate risks and help to achieve their pre-stated objectives of stable growth and profitable returns.
It should be stated right off the bat that the asset management companies differ markedly from financial entities like insurance firms, trading brokerages, or investment banks. The latter elements are interested in selling their ‘investment options’ to the market, while asset managers are interested in growing the net worth of their clients over time. For the most part, asset management companies take on high net-worth individuals who entrust the management of their financial portfolios to the asset management company.
Asset Management Expertise
It takes tremendous skill, insight, and understanding to manage the financial affairs of wealthy individuals. As such, there are different types of asset management professionals included in the mix. Regardless of their specific vocation in the asset management realm, asset managers are always scanning the financial markets for lucrative opportunities, and solutions to financial questions.
They are expertly skilled at time management – cool under pressure and quick to react to seize opportunities. Reputable asset managers have exceptional decision-making abilities with strong communication skills, and fine-tuned analytical skills.
The financial markets are filled with multiple asset categories, and that's precisely why asset managers with a diverse array of skills are needed. The asset management role includes economists and financial analysts. These highly skilled professionals monitor the financial markets, conduct the requisite research, and ensure that the best possible decisions are made when buying and selling underlying financial instruments.
They conduct in-depth statistical analyses of market trends, company performance, and assets to ensure that their clients are best served by the basket of investment options that are presented to them.
While asset manager licenses are typically not required, most companies do require that their professionals are fully licensed with the National Association of Securities Dealers (NASD), and/or other exchanges. In the corporate finance realm, the objective is to maximise company value through efficient management of tangible/intangible assets.
This also involves the use of asset accounting methodology, financing options and availability, and productions operation management. Investors and traders don't typically seek out the services of asset management companies per se, but there is the expectation that the brokerage firm, fund manager, or investment manager has the necessary experience to advise their clients accordingly.
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The Benefits of Asset Management
Asset management can have two meanings. For companies, asset management pertains to the way the company's assets are managed such as its equipment, vehicles, machinery, and human resources. For individuals, asset management typically refers to your financial portfolio of funds, shares, bonds, real estate holdings. In both cases, the underlying thread is effective management of owned assets to generate optimal returns over the long-term.
Asset managers are different than financial planners and financial advisors. Asset management companies work according to a clear and unequivocal investment mandate. They operate in tandem with client requirements, including psychological profiles, ethical values, moral codes, tax considerations, and liquidity expectations, among others.
It should be known that many asset management companies are not accessible to the everyday investor. They can have minimum annual fees ranging from $5,000-$10,000, all the way up to $100,000-$1 million depending on the assets and clients under management. They do this to filter out all the small fry in the market – they are typically interested in managing the affairs of high net-worth individuals. Since they take a cut of shared profits, based upon performance-measured accounts, it is in their best interests to manage the assets of their clients as effectively as possible.
Examples of asset managed funds include ETFs, index funds, and mutual funds. For lay investors, these funds are also accessible through different trading brokerages and financial advisors. Many asset management companies understand that most of the market simply cannot afford to pay the exorbitant fees associated with asset management for high net-worth individuals.
As such, several fund managers have rolled out asset management options for the mass market, which are a lot more affordable. The benefits of investing through asset management companies with allocations for small investors is that you can access baskets of investments that would otherwise be unavailable to you. While there is certainly less flexibility in terms of fund holdings and asset allocation, these smaller funds also include a mix of financial instruments geared towards long-term growth.
Some asset management companies are considered generalists, with funds allocated to what they believe investors will appreciate. Other asset management companies have a specialised focus with their investors, with passive investing or value investing. With hedge funds and individually managed accounts, wealthy clientele can enjoy the benefits of asset management enterprises. It's important to pay attention to the fee structure levied by asset management companies, mate.
You will be well served to conduct due diligence to ensure that the fee structure is affordable.
Mutual funds are oftentimes associated with a set percentage sales load which is debited from the investors’ account upfront. Then, there are the annual fees levied by the management company. Various commissions, hidden fees, and transaction fees may also be applicable to asset management companies. The fee structure is a critical component of your decision when investing through asset management companies. Overall, you can expect fees to run between 1.00% – 2.75%, based on your balance.
At times, you may be able to bundle different types of products with asset management companies and save money in the process. Ultimately, your decision to entrust control of your assets to an asset management company needs to be carefully evaluated. What are the pros? What are the cons? Can you afford the maintenance fees and expenses?
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