Asset Management and How Does It Work

? What is Asset Management and How Does It Work

Asset management is the service of managing a client’s money. At its core, that means identifying a client’s financial goals and then working to accomplish those goals via portfolio construction, asset allocation, risk management, and performance evaluation. Asset management can be offered by various types of financial institutions, such as banks, brokerages, investment firms, insurance companies, and wealth management firms. Asset management can also be performed by individuals who are registered as investment advisers or portfolio managers.

Asset management can be divided into two main categories: institutional asset management and wealth management. Institutional asset management involves managing money for large entities, such as corporations, pension funds, endowments, foundations, sovereign wealth funds, and governments. Institutional asset managers typically have a specific mandate or objective for their clients, such as generating income, preserving capital, or achieving a certain return. Institutional asset managers may invest in various asset classes, such as stocks, bonds, commodities, real estate, private equity, hedge funds, and other alternative investments.

Wealth management involves managing money for individuals or families who have a high net worth or income. Wealth managers typically offer a holistic approach to their clients’ financial needs, which may include financial planning, investment advice, tax planning, estate planning, retirement planning, insurance planning, and philanthropic planning. Wealth managers may also provide private banking services, such as lending, mortgages, and deposits. Wealth managers may invest in similar asset classes as institutional asset managers, but they may also tailor their portfolios to suit their clients’ preferences, risk tolerance, and time horizon.

The process of asset management generally involves the following steps

• Establishing a client relationship: This involves understanding the client’s financial situation, goals, risk profile, time horizon, and preferences. The asset manager and the client may sign an agreement that outlines the scope of services, fees, responsibilities, and expectations of both parties.
• Developing an investment strategy: This involves designing a portfolio that matches the client’s objectives and constraints. The asset manager may use various tools and techniques to analyze the market conditions, evaluate different asset classes and securities, and determine the optimal asset allocation and diversification for the client.
• Implementing the investment plan: This involves executing the trades and transactions necessary to build and maintain the portfolio. The asset manager may use various platforms and intermediaries to access the markets and execute the orders. The asset manager may also monitor the portfolio’s performance and risk exposure on an ongoing basis.
• Reviewing and adjusting the portfolio: This involves evaluating the portfolio’s performance against the client’s goals and benchmarks. The asset manager may also communicate with the client regularly to provide updates, reports, and recommendations. The asset manager may also make adjustments to the portfolio based on changes in the market conditions or the client’s circumstances.

Asset management is a valuable service that can help clients achieve their financial goals and optimize their wealth. Asset managers are professionals who have the expertise, experience, and resources to manage money effectively and efficiently. Asset managers are also fiduciaries who have a legal duty to act in their clients’ best interests and uphold high standards of ethics and integrity.