Roadmap to Knowledge
ToggleUnderstanding asset management
Asset management is an approach where you systematically increase wealth over time by strategically managing – buying, selling, or retaining – your investments.
Individuals can engage in asset management themselves if they understand the field well, or, like most people, they can hire someone called an asset manager whose job is to provide advice about which assets to invest in and how so that they are more profitable without posing too much risk.
Asset managers monitor their clients’ portfolios daily and alter them based on their analysis of market trends and clients’ financial goals. They are also called portfolio managers or financial advisors.
The role of an asset manager
Every person has a unique financial history and goals. An asset manager’s job is to understand their clients’ financial needs, provide advice, and help them invest in alignment with their goals and risk tolerance. Some of the most common investments include stocks, bonds, and mutual funds.
The asset manager not only advises on what assets to buy, but also what to avoid, what to sell, and what to retain. The asset manager makes this judgment based on thorough research and analysis of the market, including looking at the company’s financial documents, to see how investing in the company can benefit their client.
Types of asset managers
Depending on the type of assets they deal with, there are different types of asset managers.
- Registered Investment Advisers (RIAs) are firms that advise clients on trade and securities. They also manage client portfolios. They are regulated closely, and therefore, also have to register with the U.S. Securities and Exchange Commission (SEC) if they manage more than $100 million worth of assets. RIAs charge annual fees rather than earning a commission.
- Investment brokers buy or sell stocks and securities on their client’s behalf and earn a commission for each transaction. They don’t have a fiduciary duty to protect clients’ interests. That is, they are not legally bound to act with the client’s best interests at heart.
- Financial advisors help people with their financial planning. They may specialize in a specific area, like investment management, retirement planning, estate planning, and debt management. Some, but not all advisors, buy or sell investments on their clients’ behalf. Some act as RIAs or brokers. There is no regulation around these professionals so they may or may not consider it their duty to keep your best interests at the heart of their advice.
- Robo advisors are computer algorithms that can help you choose which stocks or bonds to invest in based on factors like your age, financial goals, and risk tolerance. It is generally cheaper to work with a robo advisor compared to working with a financial professional.