Asset Management

What You Need to Know About Asset Management

Everyone is an asset manager to some degree. If you’ve ever transferred money from your checking account to savings account in order to get a higher interest rate, made a down payment on a home, or even bought a car, you have engaged in the act of managing something you have ownership and control over i.e. your assets.

Through this process, you would have done two things:

  1. Determined the risks of acting, or not acting, on a possible decision
  2. Maximized the return on your cash, or converted that cash into some other type of asset

This is what asset managers do, just on a much larger scale. Although they aren’t concerned with assets that provide sentimental value (family photos) or entertainment value (such as a television set), asset managers are focused on those investable assets that provide financial growth opportunities for their clients.

The effectiveness with which your investable assets are managed will obviously determine the degree of your success. Unfortunately, though, it isn’t always easy to know how to go about hiring an asset manager or determining whether you need one at all. To help get you started, we’ve laid out four of the most important questions you should be asking:

 

1. What is asset management and what do asset managers do?

Asset managers can be individuals or firms. They work with individual clients, families and organizations like corporations or universities. They use many different types of investments which can include stocks, bonds, derivatives, limited partnerships, real estate, and a host of other opportunities such as individually managed accounts (IMAs).

Asset managers aim to balance investment asset growth with risk, while also maximizing tax efficiency. This includes monitoring asset allocation, addressing liquidity needs, adapting to market fluctuations, and executing strategies to minimize tax burdens.[

 

2. How is asset management different from financial advising?

Before discussing how asset managers differ from financial advisors, it’s important to understand the nature of each respective role.

Asset management firms differ from one to the next – some focus on managing pensions and retirement plans for large organizations, whereas others work with high net worth investors. One firm may focus on investing their client’s money in hedge funds while others, like Fidelity or Vanguard, create mutual funds. The key similarity between them, however, is that they directly manage how money is invested.

Financial advisor is a very broad term, encompassing anything from an insurance agent or accountant to a broker, investment advisor, or financial planner. Their work with clients can be specific or all-encompassing.

Typically, those who refer to themselves as advisors offer a wide range of services, including investing, retirement, and insurance. They fall into two categories:

  • Registered Representative (RR): These individuals act as brokers between a broker-dealer (investment company) and the client. They are governed by the Financial Industry Regulatory Authority (FINRA), which is a self-regulatory organization (SRO) not a government agency. As such, they are able to receive commissions from investment companies for the sale of financial products to clients. They are not required to follow fiduciary standards, either. Instead, they follow what is called “suitability,” which does not require them to put the interests of their clients ahead of their own, their firm’s, or their broker-dealer’s. Many RRs refer to themselves as fee-based financial planners (this is very different from fee-only financial planners).
  • Registered Investment Advisor (RIA): RIAs are governed by the Securities and Exchange Commission (SEC). As a result, they are bound by a fiduciary duty to place the best interests of their clients above their own. In addition, they cannot receive commissions from third-party investment companies. Their only compensation must come directly from the client in the form of hourly rates, retainers, or a percentage of assets under management. RIAs and those who work for them, Investment Advisor Representatives (IARs), are commonly referred to as fee-only planners or advisors.    

Registered Representatives are not asset managers, meaning they do not directly manage assets. Registered Investment Advisors may be asset managers, but not always. Oftentimes, they outsource asset management functions to investment companies.

Think of it this way: although most asset managers are investment advisors, not all investment advisors are asset managers.

 

3. Who should hire an asset manager?

Excluding those who manage their own investments directly – and do not use mutual funds or similar investment vehicles – leveraging professional asset management services is beneficial for most people. The degree to which a person uses asset managers, however, will vary depending on how much they are able to invest.  

Due to the expense and minimum financial requirements of working directly with an asset manager, services are limited to high net worth clients with large sums to invest.

This does not mean that investing in the same way is unavailable to the rest of us. Through pooled investments like mutual, index, and exchange-traded funds, most people have the ability to leverage the expertise of asset managers. In these instances, funds are pooled, meaning that they will aggregate large numbers of investors who invest through a brokerage firm or financial advisor, but they will never directly interact with the asset manager. The primary difference that smaller-balance investors will experience, compared to those who have a high net worth, is personalization.  

 

4. How do you find an asset manager or financial advisor?

This isn’t always an easy question to answer. One option is right here with Zoe Financial. Zoe is not an asset manager or financial advising firm – what we specialize in is connecting clients with a curated network of fee-only fiduciary advisor partners, who have been carefully selected as a result of their experience and standards of client care.

The process is simple:

  • Click here to:
  • Answer questions: Provide additional info to help us understand your current needs
  • Browse results: Our algorithm hand-picks advisors best suited to you and your situation
  • Schedule a call: Review an advisor profile, decide if they’re a good fit, and start chatting with them today!