Asset management – sometimes referred to as wealth management or portfolio management – is the business of making investment decisions on behalf of a third party. This can be accomplished through a private banking service or through a bank-independent asset management service.
Investment advisory differs from asset management in that investment advisors simply make recommendations but do not make investment decisions on behalf of clients.
There are five key advantages of conventional asset management. The quality and implementation of these key factors varies remarkably between asset management services, and should be looked into carefully before you subscribe to an asset management service.
The primary advantage of conventional asset management is the expertise which asset managers bring to the table and (ideally) the ability to purpose this expertise to clients individual needs.
Asset management expertise should also include the ability to accurately profile clients based on feedback received during consultation sessions. Client profiles should not only include clients’ wishes and unique specifications, but should also define clients’ risk capacity and risk tolerance.
Based on client profiles, assets are then allocated to suitable and risk-adjusted investment vehicles such as stocks, bonds, precious metals, commodities or currencies.
When investments are managed actively, the asset manager’s expertise must extend to selecting the right individual investment vehicles – such as purchasing specific stocks based on fundamental analysis.
2. Executing and monitoring investments
Asset managers are responsible for the execution and monitoring of each investment strategy. They should know exactly where and when investment products should be bought or sold to deliver the highest profits, and manage all transactions on their client’s behalf. Investment portfolios should be monitored and rebalanced (adjusted) when necessary.
3. Exclusive access
Some asset managers have exclusive access to investment vehicles which are not available through other channels. These may include specific company shares, stocks which have not yet been made available via an initial public offering (IPO), or difficult-to-access information or consultation. The trend towards global transparency in financial markets has raised questions about exclusive access models.
4. A one-stop solution
A fourth benefit is that asset managers often provide integrated, full-service solutions. In addition to making investment decisions, many wealth managers also manage and coordinate other wealth management services like tax consultation and optimization, retirement planning and estate planning.
5. Time savings
The fifth factor is time. Asset management services – the primary of these being the management of investments on clients’ behalf – can save clients a great deal of time. The effort involved in researching market data and executing transactions without the help of an asset management service requires a significant amount of time and effort – even for the experienced investor.
The possible disadvantages of conventional asset management are:
The cost of asset management services present the biggest drawback. A number of wealth management fees and charges may apply, and these can cut into your profits. Prospective asset management clients are advised to request comprehensive quotes which clearly outline all applicable costs before signing up for an asset management service.
2. Actively-managed investment
A number of studies have shown that actively-managed investment strategies – in which an investor or asset manager plays an active role in buying and selling individual investment vehicles – rarely perform better than standard market indexes. For this reason, an increasing number of asset managers have begun to include passive investment vehicles like exchange traded funds (ETFs) in investment portfolios.