Asset Management
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The
purpose of asset management is to manage and increase the total assets. This is achieved by acquiring, managing, and trading assets. The goal of an effective asset management program is to select
assets that have the potential to increase in value and generate high returns. An appropriate
balance between opportunities and risks is necessary in order to maximize the value of assets. Thus, asset management not only aims to maximize asset value but also to minimize risk. Financial institutions and banks are among the providers of this service. Clients often prefer
independent asset managers, since these managers can represent their interests independently from the interests of banks.
The management and monitoring of a securities portfolio is a very demanding task that requires a high level of expertise and takes a considerable amount of time. Choosing the wrong assets may result in loss of money. This is one of the reasons why hiring an asset management company is a worthwhile investment. Typically, asset management companies perform the following activities:
- The first step in asset management is to clarify the client's financial objectives. It is important to take into account the risk tolerance and risk capacity of the individual. It is necessary for customers to have enough liquid assets to meet their living expenses. Moreover, the individual's asset situation and life planning should also be considered. A sensible investment strategy should always consider the individual's personal circumstances.
- Asset management agreements are drafted once a client decides to have his or her assets managed. Further, the asset management company receives a limited power of attorney and designs the securities portfolio in accordance with the client's objectives.
- A subsequent task of asset management is to monitor and maintain the securities portfolio. When necessary, the asset manager must respond promptly and make changes, as well as keep clients informed on a regular basis. The asset management department is expected to conduct research and analysis. A combination of macro- and micro-analytical tools are employed. A variety of techniques are used in order to achieve the stated goal of increasing the value of the client's assets. These techniques include statistical analysis of prevailing market trends and the review of financial records.
Besides asset management, a
good asset management firm may also provide financial advisory services and investment consulting services.
An advantage of independent asset management is that it is free of conflicts of interest. The company is unbound and does not have to sell any specific products. Asset management should be conducted without retrocessions or commissions. By doing so, an asset management firm will ensure that its clients' interests are being pursued, and will not simply sell products that promise high commissions. There are usually no turnover targets associated with independent asset management firms.
A company that manages assets independently has access to the entire range of products available on the capital markets. The opposite is true for a financial institution that has its own products. Additionally, independent asset management offers the advantage of being able to access the entire product universe as well as the ability to compare costs and optimize them for its clients.
Remuneration is another advantage of independent asset management: a good independent asset management company is very transparent about its compensation. The most important thing to keep in mind when choosing an asset management company is to ensure that they do not take money by brokering products. A company engaged in asset management should earn its money by increasing the assets of its clients. Banks, on the other hand, can also earn revenues through various means, including exchange rate surcharges, management fees, custody fees, transaction fees, and distribution and trailer fees.
The most important thing to consider when choosing an asset management firm is whether it represents your interests effectively.
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