Asset management is the business of managing money on behalf of individual and institutional clients. Some asset management firms are giants, managing trillions of dollars, while others are small with just a few employees.
Asset managers invest money in order to meet client goals or their investment mandate. If you work with a financial advisor, they may hire an asset manager, in the form of a mutual fund or ETF, to actually invest your money.
What is an asset manager?
Asset managers come in many different forms. Here are a few of the most common.
- Registered Investment Advisors (RIA)
- A Registered Investment Advisor is a firm or individual that advises clients on their investments and may make investment decisions on behalf of clients. An RIA is a fiduciary, which means they must put their clients’ interests before their own or that of their firm.
- Investment broker
- Investment brokers buy and sell securities on behalf of clients, sometimes earning a commission in the process.
- Financial advisor
- Financial advisors assist clients with a number of different aspects of their financial lives, which may include managing their investments. Some advisors are fiduciaries, while others are not, so be sure to ask before choosing a financial advisor.
- Robo-advisor
- Robo-advisors use algorithms to build investment portfolios based on a client’s goals and risk tolerance. The portfolios are typically built using ETFs that are managed either internally, or by an external asset manager.
Asset managers vs. brokers
Asset managers and brokers may sound similar, but the two roles are quite different. Brokers execute trades in securities such as stocks and bonds for clients, while asset managers manage investment portfolios.
For example, a mutual fund you own is managed by an asset manager, whereas if you wanted to buy a stock or some other security, you’d do that through a broker.
How much does an asset manager cost?
Asset management costs can vary from one manager to the next. In general, asset managers charge fees based on assets under management. For example, a 1 percent management fee would mean someone with $100,000 in assets would pay $1,000 a year.
In fund form, these fees are expressed as an expense ratio. Actively managed funds, or funds that try to beat the market, typically charge higher fees than passive strategies. Passively managed funds, or index funds, come with significantly lower fees and may cost you just a few dollars for every $10,000 you have invested.
Benefits of working with an asset manager
The main benefit of working with an asset manager is that they’ll manage your investment portfolio so you won’t have to. Imagine having to build a diversified portfolio of hundreds of different stocks and manage it on your own. Instead, you’re able to buy mutual funds through asset managers that do it for you.
Blackrock, Vanguard and Fidelity are some of the largest asset managers in the world today, offering many different fund options for whatever your investment needs are. If you’re not sure how to get started, a financial advisor can help you identify which funds might make sense for your situation.
Bottom line
Asset managers manage investment funds on behalf of clients including through mutual funds, ETFs and private accounts, among other structures. Asset managers work to grow their clients’ portfolios over time in order to help them meet their financial goals.
Financial advisors can help you select an asset manager to work with or may act as one themselves. If you’re looking for an asset manager in your area, consider using Bankrate’s financial advisor matching tool.
