The Complete Guide to What We Do
Are you a high net worth investor seeking asset management? Asset management primarily refers to managing an individual’s investments on their behalf. The goal here is to increase the value of these assets while controlling the risk associated with asset management strategies. Asset managers can offer to manage financial assets, physical assets, and intangible assets, such as contracts or digital assets. All of these are important. However, most high net worth and ultra-high net worth investors need assistance with managing their financial assets. These assets are intrinsically linked to their wealth, and any mismanagement can lead to significant repercussions. Finding the best asset management firms is crucial here. If you are an ultra-high net worth investor with $10 million and need help with asset management, we suggest you read our guide on finding a financial advisor for wealth and asset management.
As wealth management experts with over 60 years of combined experience, we can help you understand how asset management works. We work with high net worth and ultra-high net worth investors with $5 million to $500 million in liquid assets. Our team can offer custom wealth and asset management solutions that allow you to improve the efficiency of your assets, reduce costs, and achieve your goals. Click here for a free consultation with us.
In this blog, we will answer questions like:
- What is an asset management firm?
- What type of asset management is best for me?
- How do you manage assets?
- What does an analyst do in asset management?
Table of Contents
What Do Asset Management Firms Do?
Before we discuss the complicated stuff, let’s discuss what asset managers are and what they do andanswer questions like, “what is an asset management firm?” Asset managers are responsible for determining what type of investments they should make in order to grow a client’s portfolio. They must also analyze which investments can hurt your net worth.
Asset management is a complex process that utilizes a variety of analytical tools. These tools help with:
- Statistical analysis of the past, present, and future market trends
- Evaluation of assets and their risk-return capacity
Asset managers are also responsible for the selection of assets that align with a client’s financial objectives. If you want to learn about how financial advisors manage assets to increase their value, click here to read our guide on portfolio performance.
Now that you have understood what an asset manager does, let’s discuss asset management firms. An asset management firm will invest your funds into different investments such as stocks, real estate, bonds, ETFs, currencies, mutual funds, and more. Some asset management companies also assist with pension plans, retirement income planning, and managing hedge funds.
You can refer to asset management companies as money management companies.
What Type of Asset Management Do High Net Worth Investors Need?
As mentioned earlier, there are a variety of assets, such as physical, intangible, and financial assets. You can also distribute assets into fixed and current assets. Fixed assets are long-term assets that are expected to be held for longer than a year. They include land, building, machinery, etc. Current assets, on the other hand, are liquid assets that can be easily converted into cash. They are typically sold or consumed within a year. Some examples of current assets include cash, account receivables, stocks, cash equivalents, treasury bills, and bonds.
Financial asset management is typically concerned with the management of current assets like cash, bonds, mutual funds, stocks, and bank deposits. These assets are liquid assets that derive their value through an ownership claim or a contractual right. So, if you are a high net worth investor wondering,“What type of asset management is best for me?” then the answer is financial asset management.
There is a variety of people involved in financial asset management. These include:
What does an analyst do in asset management?A financial analyst is a person that helps research potential investment options. They also carry out due diligence on potential investment opportunities and help determine the best time to sell and purchase assets.
Many asset management firms also employ economists. An economist keeps an eye on current market trends. They help asset management companies keep track of current and future market outlooks. This allows them to prepare for any unexpected events that may hurt your assets.
We have already discussed what asset managers do. These individuals utilize the insights offered by financial analysts and economists to help you make critical decisions regarding asset management. They coordinate with their clients and help ensure their interests are taken care of.
To learn more about what type of people you can expect to work with at an asset management firm,click here to talk to us.
How Can You Find the Best Asset Management Firms?
If you want to benefit from financial asset management, then it is essential to find the best asset management firms. How do you do that, though? Let’s review some of the most critical features that contribute to effective asset management.
Do They Offer Custom Solutions?
Suppose that you choose an asset management company that was able to help your friend achieve their investment objectives. You may also choose one because they happen to be among the top asset management firms that you know of. Does that ensure that you will get the high-quality asset management you are looking for? Not necessarily. Comprehensive asset management begins with understanding your unique needs and desires with respect to how you want to live your life.
An asset management firm shouldn’t just be driven toward appreciating the value of your assets. Instead, it should also focus on developing asset management strategies that help you create the life you want to live. When looking for an asset management firm, make sure you ask them questions like, “how do you manage assets?” and “how can you help me achieve my retirement goals?”
If you are trying to find a financial advisor that can help with custom financial asset management, click here to read our exclusive guide.
You can also schedule a call with one of our wealth managers. We can help you understand the benefits of custom asset management solutions and how they help with the strategic pursuit of your financial goals.
How Do They Plan To Diversify Your Assets?
Diversification is an essential part of asset management. It relates directly to risk management. Improved diversification and asset allocation can allow high net worth individuals to reduce their risk while improving the performance of their assets.
To understand diversification, let’s suppose that your asset manager invests your money in shares belonging to 20 different companies in the energy sector. Does this mean your portfolio is diversified? No. Your asset manager can invest your money in 50 different types of shares, but the fact of the matter is, your assets are still concentrated in the stock market here. Any significant economic downturns that impact the stock market will go on to affect all of your stocks.
To lower this risk, your asset manager must diversify your assets into a combination of stocks, bonds, and cash. This type of asset allocation ensures proper risk management, as these assets react differently to various market events. For instance, the price of a bond is influenced by the ongoing interest rate, the yield, and the bond’s rating.
In contrast, the value of a stock is determined by its demand among investors, the performance of the economy, and the company’s financial growth. Typically, bonds and stocks move in different directions from each other. Therefore, even if a market event affects your stocks, it will have a less pronounced effect on your bonds. This allows you to minimize your losses.
If you are an ultra-high net worth investor looking to learn more about the importance of asset allocation and diversification, order a free hardcover copy of our book, The Art of Protecting Ultra-High Net Worth Portfolios and Estates – Strategies For Families Worth $25 Million To $500 Million.
Do They Utilize Active or Passive Management?
When working with an asset management firm, it is important to find out if they use active management or passive management. Active managers buy and sell assets to outperform a specific index, such as the S&P 500 index. They do this by carrying out in-depth research, forecasting market trends, observing for economic and political changes, and analyzing any other factors that may affect your assets. The data is then used to buy or sell assets.
This portfolio management technique attempts to beat the market and therefore, exposes you to greater market risk. The amount of work that goes into active asset management also translates into higher costs. Typically, active managers charge more than passive managers. You can also expect to incur higher tax costs resulting from short-term capital gains.
Passive management is designed to invest your assets in a manner that mimics the returns of a specific market index or performance benchmark. For instance, the stocks listed on an index tend to be weighted. A passive manager will assign the same weights to your stocks. Passive management is not proactive. It also assumes less market risk and generates long-term capital gains. Since a passive manager will not be making real-time changes to your portfolio, their fees are relatively low.
Understanding whether your asset management firm is using active or passive management is very important as it determines your portfolio risk, your costs, and your returns.
At Pillar Wealth Management, we utilize a combination of these strategies so that you can enjoy maximum benefits. To learn about otherdifferences between active or passive managers,click here to read our guide on essential shifts every investor must make for high portfolio growth.
What Is Their Plan for Tax Minimization?
If you want to work with the best asset management firms, you need to understand the importance of tax minimization and how it influences your returns. As a high net worth investor, you will be required to pay taxes on short-term capital gains and long-term capital gains. Since you fall in the highest tax bracket here, your short-term capital gains will be taxed as per the ordinary income tax rate, which is 37%. In the case of long-term capital gains, your returns will be taxed at 20%. There is a significant difference here that you and your asset manager need to account for.
If you buy and sell too many assets within the span of a year, then you will be paying a hefty sum in taxes. These costs can be lowered by strategically holding onto assets and selling them to generate long-term capital gains instead.
In addition, your asset manager can also use your gains to offset capital losses and lower your taxes. Granted that you work with a qualified asset manager, there are several other techniques that you can use for tax minimization. This can contribute to your wealth. It is also a vital part of retirement income planning. If you are interested in learning more about how the right financial advisor can help you with tax minimization, click here to read our guide on choosing a financial advisor for investors with over $10 million in liquid assets.
Other Factors to Consider
Besides the aforementioned factors, we also recommend asking the following:
- Have they worked with clients having a similar net worth?
- What are the tools and techniques they use to reduce and manage portfolio risk?
- What are the costs of asset management? Bear in mind that there is a big difference between costs and the fees you pay to an asset management firm.
- How does the asset management firm balance risk and performance?
- How will they rebalance your portfolio as your time horizon and priorities change?
Now that you know the answer to the questions, “what is an asset management firm?” and “how do you manage assets?” you can choose the right asset manager for yourself.
The best asset management firms prioritize your financial goals, ensure diversified asset allocation, help you control your costs, and ensure high returns that help you generate the income you need to retire. If you need financial advisors that offer customized asset management solutions, get in touch with Pillar Wealth Management today.