Jean-François de Clermont-Tonnerre, investment advisor and Director ofAUM Asset Management Ltd with a beginner’s guide to asset management.
At AUM we take a holistic approach to our clients’ portfolios, whether they’re looking for alternative or traditional investments. This type of asset management involves multiple specialisms, from Real Asset Funds to Asset Allocation Funds, and is based on years of investment expertise.
But what if you’re new to asset management and looking for a firm to manage your portfolio? Here’s a beginner’s guide to asset management, with the aim of covering the basics to help you make an informed decision.
A guide to asset management – the basics
In its simplest form, asset management is a service that directs a client’s investment portfolio for them. Usually, this is taken on by an asset management firm on the client’s behalf. The industry tends towards high net worth clients and firms often have a minimum investment level. A basic understanding of asset management and how it can help you manage your wealth or investment portfolio helps to hire the right firm for your needs.
Let’s start with the role asset management firms play in managing their client’s investments. The companies put their clients’ investor capital to work across multiple different investments. These can be private equity, real estate, bonds, stocks or master limited partnerships. Each asset management firm will have its own investment procedure, and will generally only offer services to wealthy investors, businesses and individuals.
A wealthy investor will usually hold private accounts with the firm. They will then deposit money into the account and the portfolio manager will manage it using a limited power of attorney.
Asset managers consider multiple variables
As asset managers, we must consider a number of variables when working on client portfolios. These will focus on the client’s own unique set of financial circumstances, the risk level they are prepared to take and their personal preferences. Using these variables, asset managers will make decisions on their portfolios. Each position taken will be based on the client’s liquidity expectations, tax level and income needs, as well as their ethical values.
At the highest end, asset management firms offer a completely bespoke client experience. Every investment decision will be personally curated according to the client’s exact preferences. Often, long-standing asset management firms will work for the same family of investors for generations, as assets are handed down to heirs.
Traditionally, asset management has focused mainly on high net worth individuals, as the fee structures are usually only achievable this way. More recently, as the world of digital banking, open banking and increased accessibility for financial services has expanded, some asset management firms have changed the way they work.
These firms have pivoted their business to expand their offerings to serve a wider range of investors. In many cases, these asset management firms create pooled structures, such as index funds, mutual funds or exchange-traded funds. These are then managed from a central portfolio, which allows smaller investors to put money directly into the fund via a middleman, such as a financial planner or investment advisor. Other options for average level investors are fintech based robo-advisors such as Wealthfront or Betterment. These digital investment platforms use automated algorithms to balance investment portfolios.
What are registered investment advisors (RIA)?
RIAs give investment advice to their clients but don’t carry out the asset management. Instead, they outsource the asset management to a third-party, either by directing their client to buy the asset management firm’s index funds or mutual funds, or through a negotiated private account.
Asset management companies can also act as RIAs and take on the dual role of asset manager and financial advisor to their clients. However, not all financial and investment advisors are also asset managers. Larger asset management companies will usually hire inhouse financial advisors, who don’t actually handle the portfolios. They advise clients towards the firm’s asset management services.
Every asset management firm will have its own specialties, although larger firms are often generalists. Smaller, more specialist asset management firms like AUM Asset Management have a more specific focus. We offer individual managed accounts, which are private accounts for high-end clients. Others may build an asset management practice around mutual funds, managing money for institutions or corporate pension plans.
Selecting an asset management firm for your portfolio
When selecting an asset management firm to manage your investment portfolio, it’s good practice to get some independent advice to ensure you find one that’s ideally suited to your individual needs. The diversity of knowledge and expertise within an asset management company is key to selecting a team that can add investment value.
Each client has specific, individual needs, and for effective asset management, this means they need a firm with a broad range of expertise. Skilled asset managers can tailor investment portfolios based on client needs and will always ensure the best value is added for the client. Firms without the specialisms needed to do this will only be able to offer a broader, less targeted approach to portfolio management.
One of the most important aspects of an asset management firm is communication. This is vital for investment success, and when you select an asset management firm, assess how transparent they are with the information they offer. After all, you’re handing over control of your assets and need assurance that the firm meets the highest standards.
The information contained in this article is not intended as, and shall not be understood or construed as, financial advice. The information is not a substitute for financial advice from a professional who is aware of the facts and circumstances of your individual situation.