What Is Asset Management?

Asset management is the practice of increasing total wealth over time by acquiring, maintaining, and trading investments that have the potential to grow in value.

Asset management professionals perform this service for others. They may also be called portfolio managers or financial advisors. Many work independently while others work for an investment bank or other financial institution.

Key Takeaways

  • The goal of asset management is to maximize the value of an investment portfolio over time while maintaining an acceptable level of risk.
  • Asset management as a service is offered by financial institutions catering to high net-worth individuals, government entities, corporations, and institutional investors like colleges and pension funds.
  • Asset managers have fiduciary responsibilities. They make decisions on behalf of their clients and are required to do so in good faith.
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Asset Management

Understanding Asset Management

Asset management has a double-barreled goal: increasing value while mitigating risk. That is, the client's tolerance for risk is the first question to be posed. A retiree living on the income from a portfolio, or a pension fund administrator overseeing retirement funds, is (or should be) risk-averse. A young person, or any adventurous person, might want to dabble in high-risk investments.

Most of us are somewhere in the middle, and asset managers try to identify just where that is for a client.

The asset manager's role is to determine what investments to make, or avoid, to realize the client's financial goals within the limits of the client's risk tolerance. The investments may include stocks, bonds, real estate, commodities, alternative investments, and mutual funds, among the better-known choices.

The asset manager is expected to conduct rigorous research using both macro and microanalytical tools. This includes statistical analysis of prevailing market trends, reviews of corporate financial documents, and anything else that would aid in achieving the stated goal of client asset appreciation.

How Asset Management Companies Work

Asset management companies compete to serve the investment needs of high-net-worth individuals and institutions.

Accounts held by financial institutions often include check-writing privileges, credit cards, debit cards, margin loans, and brokerage services.

When individuals deposit money into their accounts, it is typically placed into a money market fund that offers a greater return than a regular savings account. 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 met by the same institution.

These types of accounts have only been possible since the passage of the Gramm-Leach-Bliley Act in 1999, which replaced the Glass-Steagall Act. The Glass-Steagall Act of 1933, passed during the Great Depression, had forced a separation between banking and investing services. Now, they have only to maintain a "Chinese wall" between divisions.

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 (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 the 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.

How Does an Asset Management Company Differ From a Brokerage?

Asset management institutions are fiduciary firms. That is, their clients give them discretionary trading authority over their accounts, and they are legally bound to act in good faith on the client's behalf.


Brokers must get the client's permission before executing a trade. (Online brokers let their clients make their own decisions and initiate their own trades.)


Asset management firms cater to the wealthy. They usually have higher minimum investment thresholds than brokerages do, and they charge fees rather than commissions.


Brokerage houses are open to any investor. The companies have a legal standard to manage the fund to the best of their ability and in line with their clients' stated goals.



What Does an Asset Manager Do?

An asset manager initially meets with a client to determine what the client's long-term financial objectives are and how much risk the client is willing to accept to get there.


From there, the manager will propose a mix of investments that matches the objectives.


The manager is responsible for creating the client's portfolio, overseeing it from day to day, making changes to it as needed, and communicating regularly to the client about those changes.

What Are the Top Asset Management Institutions?

As of 2021, the five largest asset management institutions, based on global assets under management (AUM), were The Vanguard Group ($6.1 trillion), UBS Group ($3.5 trillion), Fidelity Investments ($3.3 trillion), State Street Global Advisors ($3 trillion), and Allianz ($2.5 trillion).