Asset management: What is it and how to be a pro in it?
The definition of asset management held widely is the professional management of investments in assets. These can be both financial and real, to obtain a return that meets investors’ objectives. Asset management refers both to the investment management of institutional clients (insurance companies, pension funds, large companies, etc.) and the management of all types of funds.
Therefore, the asset management industry is a sector of the economy that revolves around managing wealth. Portfolios of high-income institutional or private investors and all types of collective investment institutions, such as investment funds or pension plans all depend on the industry.
The asset management industry has had extraordinary growth during the last five years.
Financial asset management
Asset Management is a discipline that seeks to obtain the highest possible return on investments in financial assets. Although each person is free to carry it out on their own, the most common is that it is done through banks or specialized companies. That is, professionals who are dedicated to it and have a much broader knowledge of the markets.
Performing asset management does not consist exclusively of studying which assets to buy and which to sell. However, it is a procedure that goes much further. It’s necessary to assess the risk and the minimum profitability we intend to obtain to do it efficiently. Besides, we should set some parameters concerning the capital we want to keep and the one we want to withdraw at all times.
Who is in charge of managing financial assets?
Managing wealth on your own is a highly complex task. Probably, if the person who does it is not an expert in this matter and does not have any experience, he will not be able to generate any profitability. If we talk about personal wealth management, the vast majority of people tend to do so through private banking, which will be in charge of carrying out complete wealth planning based on the objectives and conditions of the client.
On the other hand, if we focus on managing assets in the stock market, the investment services companies are the entities responsible for offering investment services to third parties.
Objectives and Purposes
Asset management is a complex but necessary process in many cases.
An asset manager’s role consists of deciding what investments to make or avoid to grow a client’s portfolio.
We can distinguish the following objectives and purposes as the main ones.
- Valuing assets based on their potential profitability.
- Identifying, evaluating, and acting as a consequence of the risk of maintaining, using, or operating with those assets.
- Establishing a financial action plan in the medium-long term, obtaining valuable information on financing options, expenses, and possible returns.
- Taking into account the life cycle of assets when developing strategic or financial plans.
How Does an asset management firm differ from a brokerage?
Asset management firms are fiduciary firms. Therefore, they are held to a higher legal standard than brokerage companies. If they fail to act in the best interest of their clients, they can face criminal responsibility.
Besides, compared to brokerages, they tend to have higher minimum investment thresholds. Also, they charge fees rather than commissions.
Brokerage houses accept almost any type of client. These companies have a legal standard to manage the fund to the best of their ability and align with their clients’ stated goals. However, they are not responsible if their clients lose money. Brokers must also ask permission before executing trades.
Despite the challenges the asset management industry faces, it is considered one of the most interesting sectors in finance. It’s not only because of its high assets under management but also because it is growing at high rates and will foreseeably continue doing it in the future.
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