As your assets grow, there may eventually come a time where you don’t feel comfortable managing them on your own. That’s where private asset management comes in. A private asset management professional works directly with clients to manage their investment portfolios and help them reach their financial goals.
Wondering whether private asset management is right for you? In this article, you’ll learn what private asset management is, how it works, what it costs, and more.
What is Private Asset Management?
Private asset management is a service that many advisory firms offer where they provide financial advice and portfolio management to individual clients. Private asset management professionals build an investment portfolio to help their clients reach their short and long-term financial goals. While some firms may offer asset management services to many different clients, it’s common for firms to offer these services specifically to high net worth clients.
Read More: How to Calculate Your Net Worth
What is a Private Asset?
As we talk about private asset management, it’s also important to discuss what exactly a private asset is. According to the Securities and Exchange Commission, an asset is “any tangible or intangible item that has value in an exchange.”
While the term asset can refer to anything with value, in the case of asset management, we’re generally talking about financial assets that you invest in with the expectation of a return.
The three primary assets are stocks, bonds, and cash. These assets come in several forms, including being found in the form of pooled investments like mutual funds and exchange-traded funds. In most cases, private asset management will involve the management of portfolios that include these core asset classes.
That being said, stocks, bonds, and cash aren’t the only types of assets you might find in private asset management. An individual’s portfolio could also include alternative investments like private equity, hedge funds, derivatives, and more. A private asset management professional could also manage those investments on behalf of a client.
Read More: Have You Included Your Digital Assets in Your Estate Plan?
How Asset Management Works
When an asset manager works with a client, their job is to build and manage an investment portfolio that will help the client to achieve their financial goals. The relationship between the asset manager and client will start with the manager learning about the clients:
Financial goals: What are their investment objectives? For many clients, their investment goal is a comfortable retirement, but they may have other objectives as well, including charitable giving or saving for a child’s college education.
Time horizon: Asset managers also consider a client’s time horizon when they build a portfolio. A client’s time horizon is the amount of time before they expect to need the money in their portfolio.
Risk tolerance: Each client will have their own risk tolerance. Some will be okay taking more risk for a higher potential return, while others will choose a low-risk portfolio with the understanding that their returns will also be lower.
Once an asset manager has identified a client’s goals, time horizon, and risk tolerance, they’ll use that information, along with other factors, to build a portfolio. For many clients, portfolios will include stocks, bonds, and pooled investments. High net worth clients may also have portfolios that include private equity, hedge fund investments, and more.
Once the asset manager builds a client’s portfolio, their job isn’t done. They’ll continue to manage the client’s portfolio on an ongoing basis, considering factors like taxes, investment growth, returns, and more.
Who Manages Private Assets?
There are plenty of major financial companies that offer private asset management services to individuals with various levels of assets.
First, an asset management firm is a company that manages the assets of its clients.
Within each asset management firm are the financial professionals who manage clients’ portfolios. In the world of finance, there are plenty of titles that professionals can use. These financial professionals often use titles like asset manager, wealth manager, or financial advisor.
While financial professionals can go by many different titles, there are some things that set them apart. For example, some asset managers are fiduciaries. A fiduciary is an individual or organization that has a legal and ethical obligation to act in the best interest of its clients. Financial professionals who are held to the fiduciary standard are held to a higher standard than other financial professionals, meaning they must choose investments that are in your best interest, rather than just those that are suitable.
In addition to the fiduciary standard, there are plenty of other credentials that financial professionals can have to set them apart. Some examples include Certified Financial Planner (CFP) and Chartered Financial Analyst (CFA).
When you work with an asset manager, they will usually disclose any credentials they have, as well as whether they are a fiduciary.
Costs Associated with Private Asset Management
When you hire a financial professional to manage your assets, it comes with a price tag. The cost and fee structure of private asset management will vary depending on the firm you hire. Some of the fee structures that asset management firms might use include:
A percentage of assets under management
A flat fee
An hourly fee
Commission
A combination of any of the above fee structures
A percentage-based fee of assets under management is one of the most common fee structures for asset managers. Many managers charge a fee of around 1% of assets under management each year. For example, if you had $100,000 under management, then your annual fee would be $1,000. That being said, some firms may charge fees that are significantly higher or lower than 1%.
Remember that even if your asset manager charges a percentage of assets, that likely won’t be your only cost. Individual investments also have costs associated with them, which you may pay when you buy or sell the asset, or on an ongoing basis.
Getting Started with Private Asset Management
As your assets begin to grow, you might find that it’s time to hire a private asset management professional to help manage your portfolio and ensure you’re on the right track to meet your financial goals. But with so many firms on the market, it can be challenging to know which is right for you.
Personal Capital offers wealth management services from a portfolio management team and licensed advisors held to a fiduciary standard, who can provide financial advice and professional portfolio management.
Personal Capital takes a hands-on approach with services such as smart weighting, tax optimization, intelligent rebalancing, and dynamic portfolio allocation. We even offer socially responsible investing for investors who want their portfolios to reflect their personal values.
Get Started with Personal Capital
Author is not a client of Personal Capital Advisors Corporation and is compensated for the content contained in this article.
The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. Compensation not to exceed $500. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money. Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.
