Asset Management Explained: Key Roles and Benefits

What is Asset Management?

Understanding asset management starts with defining the word “asset.” In the broadest sense, an asset is anything that delivers value to its owner and the stakeholder(s) it serves. Stocks, bonds, residential properties, and commercial office buildings are all examples of assets.

In finance, asset management describes managing money on clients’ behalf. The financial institutions managing the money are called asset managers, and they develop and execute investment strategies that create value for their clients. Broadly, this process involves “putting money to work” by buying, holding, and selling financial assets with the potential to achieve a client’s investment goals.  Examples of financial assets include stocks, bonds, commodities, shares in private funds, and more.

Most importantly, asset management firms are “fiduciaries.” This means that, unlike other parts of the financial services industry, asset management clients provide full trading authority — also known as “discretion” — of their funds to their asset manager. In turn, asset managers are legally required to act in their clients’ best interests.

 What is an Asset Management Company (AMC)?

An asset management company (AMC) is a firm that invests a pooled fund of capital on behalf of its clients. The capital is used to fund different investments in various asset classes. Asset management companies are commonly referred to as money managers or money management firms as well.

What are the Different Types of Asset Management Companies?

Asset management companies come in many different forms and structures, such as:

• Hedge funds
• Mutual funds
• Index funds
• Exchange-traded funds
• Private equity funds
• Other funds

In addition, they invest on behalf of various types of clients, such as:

• Retail investors
• Institutional investors
• Public sector (government organizations)
• Private sector
• High-net-worth clients

Buy-Side vs. Sell-Side

Asset management companies are referred to as “buy-side” firms. It means that they help clients buy investments. They make decisions based on which investments to purchase.

In contrast, “sell-side” firms, such as investment banks and stockbrokers, will sell investment services to buy-side companies and other investors. Sell-side companies provide market research and help to inform buy-side firms with valuable information to entice the buy-side firms to execute transactions with them.

Benefits to Asset Management Companies

There are various benefits to pooling capital together, including:

1. Economies of scale

Economies of scale are the cost advantages that a company can gain from increasing the scale of operations. With larger operations, the per-unit costs of operating are lower.

For example, asset management companies can purchase securities in larger quantities and can negotiate more favorable trading commission prices. Also, they can invest a lot of capital in a single office, which reduces overhead costs.

2. Access to broad asset classes

Access to broad asset classes means that asset management companies can invest in asset classes that an individual investor will not be able to. For example, an AMC can invest in multi-billion-dollar infrastructure projects, such as a power plant or a bridge. The investments are so large that an individual investor will not usually be able to access them.

3. Specialized expertise

Specialized expertise refers to asset management companies hiring finance professionals with extensive experience in managing investments that most individual investors lack. For example, an AMC can hire various professionals who specialize in certain asset classes, such as real estate, fixed income, sector-specific equities, etc.

Downsides to Asset Management Companies

Asset management companies come with a few downsides as well, such as:

1. Management fees

Most asset managers charge flat fees that are collected no matter what their performance was. As a result, over time, the fees can become very expensive for investors. Because of the costs for the resources and expertise required to run an AMC, the fees are high to compensate for such costs and to provide asset managers with a profit as well.

2. Inflexible

Asset managers can become too large to a point where they are cumbersome and unresponsive to the dynamic market. Managing too large of an amount of capital creates operational problems at times.

3. Risk of underperforming

Typically, the performance of AMCs is evaluated in comparison to a benchmark. A benchmark is a standard to compare performance against, usually in the form of a broad market index. There is the risk that asset managers underperform the markets, and if including the management fees mentioned earlier, it can become very costly for investors.

What are the Differences Between Asset Management and Wealth Management?

Asset management is the business wherein a financial institution manages money on behalf of institutions, sovereign wealth funds, pension funds, corporations, and other large groups.

On the other hand, wealth management is a service that aims to help someone with their entire financial life — both assets and liabilities — whether in financial planning, gifting, or building the legacies they want to leave for their families.

Here’s a list of the key differences between the two:

What are the Largest Asset Management and Wealth Management Firms?

You might recognize the names of the largest asset management firms in the world, as they are also some of the world’s largest financial institutions overall. The top five asset management firms globally are:

1. BlackRock (USA)
2. Vanguard Group (USA)
3. Fidelity Investments (USA)
4. State Street Global Advisors (USA)
5. Morgan Stanley (USA) ^{Source: Refinitiv as of March 31, 2022}

When it comes to the world’s largest wealth management firms, you will see some overlap with the top asset managers list because global banks typically have both asset management and wealth management lines of business to serve both their institutional and individual consumer bases. Morgan Stanley is a good example of this. The top five wealth management firms globally are:

1. UBS Global Wealth Management (Switzerland)
2. Edward Jones (USA)
3. Credit Suisse (Switzerland)
4. Morgan Stanley Wealth Management (USA)
5. Bank of America Global Wealth & Investment Management (USA) ^{Source: Adv Ratings as of June 1, 2020}

Summary

Asset management continues to play a critical role in the global financial system, helping individuals, corporations, and institutions grow and protect their wealth. As capital markets expand and become more sophisticated, the demand for skilled asset managers has grown steadily, making it a field rich with opportunity and long-term relevance.

For aspiring finance professionals, asset management offers not only intellectually rewarding work but also strong career advancement potential, competitive compensation, and the chance to make a tangible impact on clients’ financial futures. Whether you’re interested in portfolio strategy, risk analysis, or client relationship management, there are diverse roles and pathways within the industry to explore.

Additional Resources

Assets Under Management (AUM)

Management Expense Ratio (MER)

Private Banking

Private Wealth Management

See all Wealth Management resources