In this blog titled ‘asset management what is it’, let us unveil the various underlying concepts behind what asset management is and how it works in the financial cum investing world. Let us get you started here:
Introduction
Knowing how different investment terms work in the financial paradigm is the immediate need of the hour mainly because you do not want to park your funds in a savings account or banking account that pays very low returns on the funds you have in it.
Inflationary changes and interest rate fluctuations can eat away your funds in no time. Therefore, choosing an investment wheel to take care of your funds and provide more lucrative rates of returns is a pertinent need as you can utilize the earned amounts to take care of your financial needs on a short-term, medium-term, or long-term basis.
On this note, let us discuss the know-how in the blog titled asset management what is it, in a comprehensive manner. Helping you get started here:
Asset Management what is it- Meaning and Conceptualization explained
Asset management refers to the practice wherein you buy, sell, and manage your investment portfolios in a neat and streamlined manner. Wealth managers access the risk tolerances of individual investors to help them grow their wealth baskets over a period of time.
You can also call wealth managers ‘asset management professionals’ as they individually take care of their clients’ wealth-generation or income-earning portfolios through their periodic assessments and timely intervention.
These professionals usually charge a fee for performing the service to their clients. You can also name asset management professionals as portfolio managers or financial advisors as they can help you understand what are the profitable avenues of investments that are recently introduced in the market.
Or, how can you apply call or put options into financial derivatives to mitigate profits or losses in the investment portfolios. Plus, you can get advice on tax implications that apply to various investing platforms on the whole.
Therefore, the asset managers provide a whole lot of services for their clients. These professionals work for clients independently. Or, they offer these services working at a financial institution, investment banks, or stock holding corporations on the whole.
In a crux asset management also refers to wealth management strategies that are prudently applied to help every investor grow his wealth basket in the longer run or to provide for a more prosperous future.
Understanding the features of asset management
These are the different features you can associate with an asset management firm. Helping you through with a run-down into the same:
1. Has a double-edged goal
Asset management works on a double-edged goal:
- To increase the value of an investment portfolio
- To mitigate unprecedented losses arising to investors on account of incorrect investing decisions.
These are the two objectives that are achieved by wealth or asset management exponents by assessing the specific amount of risk tolerance every independent investor can carry under his/her belt.
The asset allocation comprises of different asset classes the investment world has to offer on the whole.
2. Types of portfolios asset management comprises of
Asset managers usually work with two main types of portfolios with respect to investors. These are for the risk-averse or traditional investors and the young and energetic investors.
For instance, a pensioner or a retiree may look for a pension fund administrator who looks after his funds and manages his portfolios in a prudent manner. These investors may look for safe forms of investments that are completely capital-protected as they do not want to ruin their capital investments over volatile market conditions of equities or other dynamic forms of investments.
On the other hand, younger and more energetic individuals may want to look for high-risk investment options as they want to earn higher sources of income over a shorter span of time.
In a crux, asset management firms work with retail cum institutional investors.
3. Identifying risk tolerances
The asset management teams usually work between risk-averse or traditional investors and between dynamic risk-taking investors.
That primarily explains why asset managers sit with a client through a one-on-one appointment to discuss what the investor has in mind and how the right type of portfolio can be worked out for him as such.
Here, the asset professionals assess specific risk tolerances for individual investors to gauge the kind of risk every investor can take under his belt.
4. Defining the role of asset management
The overall goal of asset management is to identify what type of investment choices should the investors or clients make. Or, what are the moves that need to be avoided.
This is done after every investor’s individual risk tolerance ratios are arrived at. The asset managers realize what every investor’s financial goals are and builds an investment portfolio accordingly.
By identifying a client’s risk tolerance limits, the investment or asset managers decide what kind of bonds, stocks, real estate commodities, mutual fund options or other alternative forms of investing options are for the investor. And then, a wealth-basket or investment portfolio for every investor is worked out.
5. Rigorous research involved in asset management
Asset or investment management involves varying degrees of research to work around investing portfolios and help investors achieve their wealth generation objectives globally.
Asset managers therefore have to work through multitude of micro and macro analytical or derivative tools to guage every individual investor’s financial plan vis-a-vis its income-generating potential.
The research primarily includes:
- Statistical analysis of prevailing market trends
- Review of different types of financial documents
- Determining the tools and derivatives to improve client’s wealth generation or income earning objectives
What are the different types of asset managers who offer specialized services with respect to asset management?
There are different types of asset managers who specialize in offering independent forms of asset managing services under specific investment categories.
Let us have a look at who are they and what types of services do they specialize in. Helping you get a run-down into the same:
- A Broker
A broker can be an independent contributor or belong to a financial entity like a stock broking firm. They buy and sell stocks and securities on behalf of their clients. For every transaction a client earns through their platforms or advisory guidelines, the client is required to pay a commission to the broker. This is known as brokeraging fees or commission.
- Financial advisors
Financial advisors are independent advisors who provide advisory services to their clients. They help investors in deciding what type of investment options can come with tax saving benefits or what types of investments can be customized to suit the investor’s preferential needs or tailormade requirements. The financial advisors can also work for investment grade banks or financial corporations.
- Robo advisors
Robo advisors belong to this world of technological innovation and these are bots in investments. The bots actually monitor the market movements and help you figure out volatile market conditions.
The websites are completely compatible and user-friendly as they provide investors with a lot of customizing options on the website. Say for instance, you can set up your own stop losses or profit percentages on the equity shares or stocks you may want to buy/sell during the day.
The computer algorithm allows the robo advisors or bots to scan through complicated financial charts to decipher or throw recommendations on what are the stocks to buy or sell during the day, on a profitable mode.
These websites have made intra-day share trading a cake walk for consumers by giving them well-defined cues on market movements and help them get nuances to proceed further.
What is the cost of asset management?
Let us dive into the different types of fee structures brokers or asset managers charge for their advisory services:
- Commission percentages
An intra-day share broker usually charges a percentage of client’s transaction profits out of every share trading transaction.
Say for instance, an investor X buys Apple shares for $500 dollars per share and sells it at $600 per share and the brokerage commission is 2%.
The difference between purchase points and sale points get calculated. Here in this instance it is $600-$500= $100.
2 percent of 100 dollars equals 2 dollars. Therefore, the client gets 98 dollars for this particular transaction post deducting the brokerage commission.
Note: The brokerage commissions differ from broker to broker and the figures were taken up for illustration purposes alone.
- Estate fees
To maintain a real estate property, there are owners who appoint real estate asset managers. They help appoint lawyers to handle litigation cases that may arise on the property.
In the case of the sudden death of the owner, how will the property proceeds get divided amongst members of the survivor. The real estate property manager liaisons with the law suit exponent and determines percentages of property division and the amount that each member is liable to get.
The real estate managers collect fees or work on salary-based pay structures for the services they render for the property evaluation under different contingent circumstances.
- Investment portfolio fees
Financial advisors or wealth managers also charge portfolio building fees for their investors who come to them as clients. The asset managers curate investment portfolios in the form of bonds, securities, exchange-traded funds or currencies to name a few.
The fee is charged based on the weighted values of every investment portfolio.
Say for instance, if a diversified portfolio costs USD 1 million, the transaction fee you may need to give to a financial advisor or a wealth manager may range between 5 to 10 percent of the overall value of the investment portfolio.
In this scenario it is 5 to 10 percent on 100,000 US Dollars. The fee may vary between 5000 to 10,000 dollars per portfolio. The fee structure is levied in the form of administrative or portfolio handling charges.
How do asset management companies work?
Let us have a detailed look into how asset management companies work for their clients. Helping you with a run-down through the same:
- To serve the investment needs of individuals and corporations
Asset management companies not only help individuals manage their investment portfolios but also help financial firms or corporations choose their investment options.
Banks can also act as asset managing corporations. Here they help account holders for a. cheque-writing services b. Issuance of credit/debit cards, c. issuance of loans at marginal interest-rates d. Choosing deposit schemes that offer lucrative interest rates or bonuses and a whole lot of them.
Similarly, you also have individuals such as independently working financial advisors, investment-bankers or wealth managers who provide advisory services helping individual clients increase their wealth portfolios.
- Investment protection norms
The asset managing firms not only help investors or their clients choose investment plans wisely but also advise them on what options can be protect their capital or initial investment money.
They suggest money market options that can offer better rates of returns over keeping your money into your salary or regular savings accounts.
Apparently, even if the product issuing firm or the bank signs up for its liquidation, you have the Federal Depositor Insurance Company or the FDIC that at least protects every depositor to the tune of US$ 250,000 per depositor.
Investment biggies like Vanguard, BlackRock and Fidelity are popular asset management firms across the US that provide balance sheets for clients and draw up a whole lot of investment services for their clients. These firms manage or automate largest assets under management teams.
Key takeways on asset management
1. Asset management and wealth management go hand in hand in helping investors build or grow their investment portfolios.
2. Asset management industry comprises individual wealth managers or investment bankers and financial companies that render long-term investment options their clients or investors could use towards wealth-generation objectives.
3. The financial instruments or investment funds chosen by the asset manager’s professional experience helps millions of clients choose the right investment plans that aim growth and prosperity helping the asset management industry touch a trillion dollar mark.
4. Sovereign wealth funds include exotic choice of investment products or investment opportunities for retail and institutional investors. The mandate includes choosing the right types of stocks and bonds that can maximize the value of the portfolios in a longer run.
5. Investment advisory services provide the best possible investment goals within top asset classes catering to institutional clients and wealthy individuals belonging to the retail sector.
6. The asset managing services include providing advisory services pertaining to strategic decisions or informed decisions a particular class of investors may have to make to gain progress in business activities or help them fulfill personal cum business models of wealth or income-generation via high-quality strategies.
7. Suggestive measures for choosing alternative investments inside a diversified portfolios can also be done by wealth managers or asset development firms on the whole.
The Bottom Line
Asset management can comprise of individuals and financial corporations. The fee structures that are charged to clients depend on the nature of asset management services you avail from an individual contributor or from a financial firm.
Above all, you must read initial offer documents carefully before you sign up for investment plans. What are your thoughts on this? Do mention them on the comments below!
