What is Asset Management?

Asset management is the direction of all or part of a client's portfolio by a financial services institution, usually an investment bank, or an individual. Institutions offer investment services along with a wide range of traditional and alternative product offerings that might not be available to the average investor.

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Asset Management

Understanding Asset Management

Asset management refers to the management of investments on behalf of others. The process essentially has a dual mandate - appreciation of a client's assets over time while mitigating risk. There are investment minimums, which means that this service is generally available to high net-worth individuals, government entities, corporations and financial intermediaries.

The role of an asset manager consists of determining what investments to make, or avoid, that will grow a client's portfolio. Rigorous research is conducted utilizing both macro and micro analytical tools. This includes statistical analysis of the prevailing market trends, interviews with company officials, and anything else that would aid in achieving the stated goal of client asset appreciation. Most commonly, the advisor will invest in products such as equity, fixed income, real estate, commodities, alternative investments and mutual funds.

Accounts held by financial institutions often include check writing privileges, credit cards, debit cards, margin loans, the automatic sweep of cash balances into a money market fund and brokerage services.

When individuals deposit money into the account, it is typically placed into a money market fund that offers a greater return that can be found in regular savings and checking accounts. Account holders can choose between Federal Deposit Insurance Company-backed (FDIC) funds and non-FDIC funds. The added benefit to account holders is all of their banking and investing needs can be serviced by the same institution rather than having separate brokerage account and banking options.

These types of accounts resulted from the passing of the Gramm-Leach-Bliley Act in 1999, which replaced the Glass-Steagall Act. The Glass-Steagall Act of 1933 was created during the Great Depression and did not allow financial institutions to offer both banking and security services.

Key Takeaways

  • Asset management refers to the management of investments on behalf of others.
  • The goal is to grow a client's portfolio over time while mitigating risk.
  • Asset management is a service offered by financial institutions catering to high net-worth individuals, government entities, corporations and financial intermediaries.

Example of an Asset Management Institution

Merrill Lynch offers a Cash Management Account (CMA) to fulfill the needs of clients who wish to pursue banking and investment options with one vehicle, under one roof. The account gives investors access to a personal financial advisor. This advisor offers advice and a range of investment options that include initial public offerings聽(IPO) in which Merrill Lynch may participate, as well as foreign currency transactions.

Interest rates for cash deposits are tiered. Deposit accounts can be linked together so that all eligible funds aggregate to receive the appropriate rate. Securities held in the account fall under the protective umbrella of the Securities Investor Protection Corporation (SIPC). SIPC does not shield investor assets from inherent risk but rather protects those assets from financial failure of the brokerage firm itself.

Along with typical check writing services, the account offers worldwide access to Bank of America automated teller machines (ATM) without transaction fees. Bill payment services, fund transfers and wire transfers are available. The MyMerrill app allows users to access the account and perform a number of basic functions via a mobile device. Accounts with more than $250,000 in eligible assets sidestep both the annual $125 fee and the $25 assessment applied to each sub-account held.