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The Intricacies of Asset Management

Roland Monsma

Thoroughly planned investments ensure your money works for you. Building wealth and creating future stability for yourself or your family requires patience and well-timed action. However, today's market landscape is complex and many-layered. Beyond the many traditional asset categories, there are new and emerging areas for investment, too. Placing your money in the assets appropriate for your strategy is fundamental. However, investment is rarely frictionless.

Guiding investments toward growth requires absorbing vast data sets and analyzing their impact on your plans. You must combine and harmonize many different elements and sources of data to make timely moves to manage risks. That's easier said than done for an individual, especially when managing a large and diverse portfolio. Such situations are the ideal occasion to turn to the help of an asset manager.

Take a moment to explore what asset management involves and how today's investors rely on such services.

Defining Asset Management

Asset management is a professional service offered to investors. The goal is to implement effective stewardship of the client's assets, guiding investments toward opportunities for growth while managing risk. Management involves strategically buying, selling, and holding assets to achieve specific goals or striving for a particular ROI target. Rather than simply using a client's money to buy and sell stocks alone, asset managers have a more complex job. Assets under management often include:

  • Stocks
  • Bonds
  • Commodities
  • Funds
  • Real estate, residential or commercial

Both individual and institutional investors may choose to work with asset managers.

What Are Asset Managers?

Individual investors may prefer to exercise control over their own portfolios. Giving up control to a third party may seem too risky. However, understanding the role of an asset manager illuminates why some investors choose this path. An asset manager is typically a highly experienced professional with a well-rounded market understanding. Some specialize in particular asset classes, while others offer a comprehensive service for those seeking a highly diversified portfolio.

Investors often discuss their risk appetite with asset managers and provide input to inform how a manager will develop a strategy for that particular client. This is where the core benefit of working with an asset manager lies. Managers and their firms are legally classed as fiduciaries, and as such, they have a fiduciary duty to their customers. In exchange for the authority to manage a client's assets, the manager is strictly obligated to act only within that client's best interests.

Hence, portfolio managers are vested in pursuing good results for clients. Deviating from an investor's preferred risk level, investing in delicate assets, and taking other actions would all be breaches of the fiduciary duty. Because of this duty, investors develop trust with asset managers, creating an opportunity for effective collaboration.

Ways You Can Engage With Asset Management

Asset management services come in many forms. However, it is necessary to note that some services related to asset management do not always have a fiduciary duty. A typical broker or dealer that conducts transactions on your behalf may not necessarily have a duty to you. There are many types of non-regulated terms and titles in this space. Therefore, investors should always inquire about a potential asset manager’s status before engaging.

When navigating this space, it is always prudent to conduct some research as due diligence on those providing services before you hand over control of any assets.

The Benefits of Asset Management

Why do individuals, corporations and others choose to work with asset managers? Most do because they see a sound potential for realizing tangible and intangible benefits. Some of the aspects commonly cited as advantages of working with a fiduciary asset management provider include:

  • Improved risk management. Managers work with you to understand what level of risk you can tolerate for a given level of return. Asset managers can also achieve a balance between potentially riskier asset categories and those that provide fundamental strength to your portfolio.
  • Optimizations for growth or stability. Managers can provide insights that make your money work more efficiently for you.
  • Experienced insight and advice during periods of volatility. Managers may help you weather storms by adjusting investments and asset holdings based on market conditions or forecasts.
  • Opportunities to pursue potentially profitable investments without a daily hands-on responsibility.

The Potential Issues with Asset Management to Know

As with everything, there are potential issues investors should be aware of before diving into the search for management firms. As mentioned, not every financial advisor has a strict fiduciary duty to investors. It is essential to know the difference between those who have a duty, such as registered investment advisors, and those who may not.

Asset management companies charge fees for their customers, which can vary based on the level of your investment and other factors. Some investors may not wish to pay such fees, which may be a percentage. Understand the terms of an asset management agreement and the costs you may pay in advance to avoid surprises.

Exploring Asset Management for Modern Investors

The future of asset management is full of potential. New investment opportunities and instruments continue to develop, as does technology in the finance sector. Today's robo-advisors could be tomorrow's AI asset managers, working with human professionals to offer keener insight. Will future strategies make it less stressful to weather volatility and place funds into the appropriate spaces? Time will tell, but many professionals foresee substantial changes on the horizon.

Asset management services may be a valuable tool for some investors. With many different styles and approaches to asset management, finding a service closely aligned with your goals is fundamental when choosing this approach. Complex portfolios, multi-faceted investment goals and other concerns may all make outside professional help appealing. Evaluate your needs and explore what suits you.

Roland Monsma

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