Asset management is the practice of increasing total wealth over time by acquiring, maintaining, and trading investments that have the potential to grow in value. The goal of asset management is to maximize the value of an investment portfolio while maintaining an acceptable level of risk. Asset management professionals perform this service for others.
Understanding Asset Management
Asset management has a double-barreled goal: increasing value while mitigating risk
- The asset manager’s role is to determine what investments to make and avoid
- They conduct rigorous research using both macro and microanalytical tools
- This includes statistical analysis of prevailing market trends, reviews of corporate financial documents, etc.
How Does an Asset Management Company Differ From a Brokerage?
Asset management firms are fiduciary firms
- Their clients give them discretionary trading authority over their accounts, and they are legally bound to act in good faith on the client’s behalf
- Brokers must get client’s permission before executing a trade
- They usually have higher minimum investment thresholds than brokerages do, and charge fees rather than commissions
What Does an Asset Manager Do?
An asset manager initially meets with a client to determine what the client’s long-term financial objectives are and how much risk the client is willing to accept to get there.
How Asset Management Companies Work
Asset management companies compete to serve the investment needs of high-net-worth individuals and institutions
- Accounts held by financial institutions often include check-writing privileges, credit cards, debit cards, margin loans, and brokerage services
- When individuals deposit money into their accounts, it is typically placed into a money market fund that offers a greater return than a regular savings account
Example of an Asset Management Institution
Merrill Lynch offers a Cash Management Account (CMA) to fulfill the needs of clients who wish to pursue banking and investment options with one vehicle, under one roof
- The account gives investors access to a personal financial advisor
- Interest rates for cash deposits are tiered
- Accounts with more than $250,000 in eligible assets sidestep both the annual $125 fee and the $25 assessment applied to each sub-account held
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