Asset Management: All That You Need to Know

May 4, 2023
Succeeding in business is closely tied to the concept of asset management. That can be seen in the numbers that asset managers continue to post. In 2022, the asset management industry rose to $126 trillion. Such astronomical figures may make you feel this is something out of reach. However, understanding the basics helps you get started.

What is asset management?

Asset management entails the strategies undertaken to increase wealth over time. It is all about managing a client’s money. That can be achieved through various approaches, such as acquiring, maintaining, and trading investments. Such investments have the potential to grow in value, hence attracting the attention of an asset manager.

Asset management is normally provided as a service by professionals who do it on behalf of others. Such professionals are sometimes considered financial advisors or portfolio managers. They can work as an individual or as part of a financial institution like an investment bank.

The bottom line of asset management is to increase value and minimize risk. Therefore, asset managers often seek to first understand how much risk the client can tolerate. The level of tolerance depends on the client in question. For instance, an adventurous person or a young investor could be more open to doubling their risk. On the other hand, a retiree depending on their portfolio for income, tends to avoid taking as many risks as possible.

There would be no asset management without an asset manager. The asset manager determines the investments to make and those to avoid in an effort to meet the financial goals provided by the client. The investments involved in asset management are broad and cut across real estate, bonds, stocks, mutual funds, and alternative investments, among others.

Research plays a central role in asset management. Asset managers often conduct thorough research through macro and microanalytical tools to get a clear picture of the market. The data they get cuts across the company’s financial documents, market trends, and anything that is helpful in achieving the client’s investment goals.

Asset management firms normally operate under the understanding that they are fiduciaries. That means the client allows the asset manager full trading authority as opposed to what happens in other sections of the financial services industry. As a result of this authority, asset managers are legally bound to act in the client’s best interest.

Key points to note about asset management are that:

  • The aim of asset management is to increase the value of an investment portfolio to its possible maximum while keeping risks to an acceptable minimum
  • Professionals and financial institutions provide asset management as a service. Clients for such a service typically include government entities, institutional investors, corporations, and high-net-worth individuals
  • An asset manager is legally obligated to act in the best interest of the client. That’s because they have fiduciary responsibilities, hence the need for this good faith

How asset management firms work 

Asset management firms are normally in an endless competition to meet the investment goals of their clients. The companies (financial institutions) operate accounts that include margin loans, debit cards, credit cards, brokerage services, and check-writing privileges.

Individuals deposit funds into their accounts, which the financial institution transfers into a money market fund with greater returns compared to a regular savings account. A money market fund is some form of mutual fund whose investments are highly liquid and near-term.

The account holders have the advantage of enjoying all the services they need under one roof. That is, they get both banking and investing services in the same financial institution without strain.

Is asset management the same as wealth management?

Asset management and wealth management are closely related but have some salient differences.

In the case of asset management, the financial institution manages money on behalf of its clients, which can include government entities, high-net-worth individuals, and corporations, among others. Such clients are formally called institutional investors, while the asset manager is known as the institutional asset manager.

Wealth management is essentially asset management. However, the client, in this case, is an individual or family. When undertaking wealth management, the individual’s or family’s budgets, cash flows, goals, employment terms, insurance needs, trust funds, and charitable giving are evaluated.

Who is an asset manager?

An asset manager is a financial professional whom clients approach to manage their money and securities according to their fiduciary duties and expects an increase in the value of the assets given. The asset management industry has specific titles for these professionals, including robo-advisors, financial advisors, institutional wealth managers, financial advisors, stockbrokers, and registered investment advisors.

In the same way that asset managers have names, they also have different tasks on their desks. An asset management company handles three fundamental roles including:

  • Give the client access to institutional money managers
  • Create a platform for financial advisors to meet client needs and goals
  • Make relevant changes to the client’s portfolio where needed

An institutional advisor has the option of partnering with asset management companies to leverage a specialized team for managing clients’ investment plans. The benefit of doing this is that the investment advisor gets to put their attention on the client.

Types of asset managers

The following are the most common asset managers:

  • Robo-advisor

A robo-advisor is not a human. It is a digital platform created with algorithms that automatically provide financial planning and investment services with minimal or no human intervention. A robo-advisor works by asking questions about the current financial condition and future goals. The questions, which are completed online, assist the robo-advisor in giving appropriate advice and automatically investing for the client.

There are various robo-advisors available in the market. Investors can choose what best works for them by considering the account setup process, portfolio management features, account services, robust goal planning, low fees, comprehensive education, and advanced security features.

Betterment was the first robo-advisor and was launched in 2008. The platform focused on assisting individuals in managing passive, buy-and-hold investments. Since then, more robo-advisors have emerged and enhanced the technology used. The majority of these use modern portfolio theory (PMT). They give account holders the opportunity to choose preferred mutual funds or EFTs to invest in. account holders can also buy bonds or stocks through these platforms.

As technology improves, so do the robo-advisors. Today, clients can optimize their portfolios to incorporate socially responsible investing, tactical strategies, and halal investing. Furthermore, they can take care of sophisticated tasks like retirement planning, investment selection, and tax-loss harvesting.

Some people would choose robo-advisors due to the low fees compared to what asset managers typically charge. Also, their ease of reach, 24/7, makes them an ideal choice. All that the investor need is an internet connection, and they are good to go.

  • Financial Advisor

A financial advisor is a professional that shares insightful information that assists one in making decisions regarding what to do with their money, including the investments to make. These individuals stand out as the client’s financial planning partners. They give recommendations about investment opportunities. Besides, they can get hands-on by buying and selling securities on behalf of their clients.

Not all financial advisors have a fiduciary duty. Thus, it is important that the investor gets clarity on this during the early stages of engagement.

When one starts engaging a financial advisor, they end up covering many topics, even more than initially envisioned. For instance, say you plan to retire in 20 years. You will approach a skilled professional who has the training to factor in all aspects of your goal. Such a professional will explain your savings needs, the accounts required, and the insurance to take. They would also guide on tax and estate planning.

Financial advisors are also considered educators. Such individuals help one to comprehend what is entailed in their future financial goals and give basic training on financial topics. Typically, these topics start with budgeting and saving but then get into complex concepts like taxation, insurance, and investment.

  • Investment broker

Investment brokers are financial professionals who execute investment transactions for their clients. They are involved in buying and selling investment products like mutual funds, bonds, and stocks.

An investment broker can be a dealer or a broker, depending on how they are viewed and operated. They take on the broker title when they work on behalf of the customer and are a dealer when working on their own account. They are free to operate as both brokers and dealers.

Today’s investment brokers are easily reachable online through various trading platforms. They provide the advantage of lower fees as opposed to working with them in person.

An investment broker charges fees and commissions from trades. The fees are their primary way of making money and can include mutual fund fees, account fees, trading commissions, trading spreads, and asset under-management fees.

Individuals who are getting started with investing and want to establish a robust investment strategy will benefit from an investment broker. The type of investment goal and strategy that an individual has will influence their choice of an investment broker. Ensure that you understand the broker’s fees so as to align them with your goals.

  • Registered investment advisors (RIAs)

Registered investment advisors are firms that provide advice regarding securities investments and can also manage the client’s investment portfolios. Registered investment advisors are regulated by the U.S. SEC and must meet strict requirements to maintain their registration status.

RIAs operate with fiduciary duties. That is, they have to provide investment advice that works in the best interest of their client.

A registered RIA does not necessarily mean it is recommended by the SEC or relevant regulatory bodies. However, clients can view this registration status as a boost of confidence since the RIA met strict requirements to attain the status. The SEC requires the following documents when registering RIA:

  • Fee structure
  • Investment style
  • Top officers in case of a company
  • Information on conflicts of interest
  • Disciplinary action the advisor may have faced in the past

The above information is not one-off. Instead, RIAs are expected to update their details with the SEC on an annual basis. The public can access documents pertaining to the above.

The services one can get from RIAs include advice on insurance, financial planning, budgeting, wealth management, retirement planning, debt repayment, estate planning, and investment management.

It is easy to confuse RIAs with broker-dealers. However, the two differ in significant ways. RIAs normally advise on all matters to do with finance, like estate planning, taxation, and estate planning. On the other hand, broker-dealers focus on enabling buying and selling of assets such as stocks.

Another important difference lies in the way broker-dealers and RIAs interact with clients. RIAs have a fiduciary obligation and must act in the client’s best interest, while broker-dealers just meet the standard of suitability.

Three asset management trends to watch for

Just like any other industry, the asset management sector also experiences waves of change that can be a good thing for some people and bad news for others. Thus, you need to always pay attention to what is happening in the sector, which would help you stay ahead of matters.

  1. Inflation. Asset managers need to keep an eye on inflation and create safe havens for their clients. Little progress has been made so far in slowing down inflation. Such developments dampen consumer confidence, profit margins, and profit earnings. Businesses tend to cut on investments during such times. Thus, asset managers have to find reliable investments that encourage clients to take part.
  2. Energy. Energy is key to society’s everyday life as it powers gas and electricity for vehicles, ACs in homes, machinery in factories, and many other use-cases. Disruption in the supply chain can lead to high prices for consumers and high profits for providers. Governments are equally moved to take action when anything crucial happens to energy. Asset managers need to study this trend and figure out how it fits into their overall investment strategy, especially considering energy has a bright future.
  3. Cryptocurrency crash. Cryptocurrency might have started as the next big thing, but things are now on a different trajectory. As more exchanges collapse, it is imperative that asset managers involved in this sector know what to do. Even though crypto may have better days in the future, right now, things look bad for the digital asset.


Asset management is a broad topic that includes various types of asset managers and investment opportunities. As an investor, one needs to understand what their goals are and make the right investment decisions. Luckily, asset management gives you access to professionals that can guide you in every step.