June 13, 2024

The guide to understanding asset management

The guide to understanding asset management

The management of all or a portion of a client’s portfolio provided by a financial services firm, often an investment bank or an individual, is called asset management. These institutions mostly provide investing services and a wide range of standard and innovative product offerings that there are chances a typical investor may not have access to.

Let’s understand asset management 

So, as we know, the management of assets on behalf of others is referred to as asset management. This method fundamentally has just two goals:

  • The long-term appreciation of a customer’s resources
  • while reducing risk

So, in processes like these, there are investment minimums; this is the reason why this service is typically offered only to high-net-worth individuals, government bodies, businesses, and financial intermediaries. An asset manager’s job revolves around deciding what investments to make or avoid to develop a portfolio of their clients. A very extensive study is carried out to find out about the same, which uses both macro and microanalytical techniques. These techniques include a variety of factors; these are as follows:

  • statistical research of current market patterns
  • interviews with corporate leaders
  • Anything else that will help the stated aim of client asset appreciation.

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The adviser is more likely to invest in the stock, fixed income, real estate, commodities, alternative assets, and mutual funds. So, there are various common features of accounts maintained by most of the financial institutions present. These features of the institutions involved:

  • Check writing rights
  • Credit cards
  • Debit cards
  • Margin loans
  • The automated sweep of cash balances into a money market fund
  • Brokerage services

Most of the time, people prefer to put their money into the account; this money they deposit is generally invested in a money market fund, which tends to provide a higher return than conventional savings and checking accounts. The account holders get this option if they want to invest in FDIC-backed funds or non-FDIC-backed funds. The best thing or the perk with the customers or the account holders is that they benefit from having all of their banking and investment requirements met by the same institution, and thus, they do not need to have separate brokerage accounts and banking alternatives.

So, do you ever wonder what led to the creation of such accounts? Here is the answer, these sorts of accounts were created due to the Gramm-Leach-Bliley Act; this particular act replaced the Glass-Steagall Act in 1999. This was done so the time of the Great Depression, the Glass-Steagall Act of 1933 prohibited financial firms from providing both banking and security services.

Example of such an institution

Cash Management Account (CMA) is provided by Merrill Lynch to clients who want to explore banking and invest alternatives just by a single vehicle and under one roof. Like the investors, there are so many perks that the investors can consult with a personal financial counselor that the account provides the clients with. The work of this adviser is to provide guidance as well as a variety of investment alternatives, including initial public offerings (IPOs) in which Merrill Lynch may participate and foreign exchange transactions.

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The cash deposits have a tire of interest rates. The best way to receive the same rate of interest is to link one’s deposit accounts to receive the eligible funds at the same rate. The securities stored in the account are protected by the Securities Investor Protection Corporation (SIPC). The main function of the SIPC is to safeguard investor assets from the financial failure of the brokerage business instead of the inherent risk. The institution provides the check-writing capabilities, but the account also provides free international access to Bank of America automated teller machines (ATMs). Other options include:

  • Bill payment
  • money transfers
  • wire transfers

There is an app called MyMerrill; this app lets the customers access their accounts and aids them in being able to conduct a variety of basic activities from their mobile device. So, the accounts that have more than $250,000 in eligible assets are exempt from the yearly $125 charge and the $25 assessment for each sub-account owned.

But there are times when people fail to identify the vital difference between an Asset management institution and a brokerage. To make the concept simpler, here’s our answer to this doubt of yours. As you know, asset management businesses are fiduciary firms and are held to a higher legal standard than brokerage houses because they typically have discretionary trading rights over accounts. They are even capable of facing criminal charges if they fail to work in the best interests of their customers. Their eligibility criteria, or as we call it, minimum investment requirements are higher than the brokerages. Also, they charge fees instead of commissions. Brokerage firms make almost any sort of customer, and there most of the times are no eligibility criteria stated as such, and while they have a legal obligation that they have to manage the fund to their maximum potential and following their clients’ stated aims, they at the same time are not liable if their clients end up losing the money. Brokers are also bound to ask the customer or their clients before the official starts any trade in the brokerage system.

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If you are wondering which the Best Asset Management Companies are, then the answer for your question is that in terms of worldwide assets under management (AUM), the five largest asset management firms in 2020 were:

  1. BlackRock ($7.3 trillion)
  2. Vanguard Group ($6.1 trillion)
  3. UBS Group ($3.5 trillion)
  4. Fidelity Investments ($3.2 trillion)
  5. State Street Global Advisors ($3 trillion)

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