When my husband and I first started looking for help with our finances I kept running into the term asset management. My first thought was “What the hell is asset management?”. Like so many terms in finance it’s not a term anyone actually uses with each other. Only in finance do you hear people discussing “asset management”. At its core what is asset management? It is managing your money and investments.
Asset Management Details
You have a certain dollar amount in your investment and retirement accounts. These are considered your assets in the financial world. Financial advisors can help you manage those investments. They help you choose which stocks,bonds,mutual funds and ETFs to purchase. Then they make the sales, purchases and monitor your accounts over time. Their assistance is considered asset management.
Typically you will see advisors charge a percentage of your assets under management (AUM) as their fee. For instance if you have $100,000 in your account your financial advisor may charge you a 1% AUM fee. This fee will equal $1000 each year. Often financial advisors take their fees directly from your account each quarter. So in our example that would mean paying $250 every 3 months during the year.
Why asset management works for advisors
Charging an asset management fee is often touted as the best way to get “conflict-free” financial advice. Your advisor is not getting paid to sell you any products (think specific mutual funds, insurance or annuities) so you don’t have to worry about your advisor selling you products you don’t actually need. They are getting paid for giving you financial advice, which often includes financial planning services.
For your advisor this is convenient – they don’t have to sell and they also get paid directly from your account.
Why you may NOT need asset management help
Your advisor gets paid whether or not your account does well. Your payments to him or her are deducted directly from your retirement and investment accounts which is convenient – and easy to forget. Advisors know that clients don’t always pay attention to those quarterly payments. They are often hoping you are not paying close attention since you don’t have to write a check or pay a bill each month or quarter.
Your advisor also has an incentive to make sure you keep as much money as possible in your accounts. For instance if we take our $100,000 account from earlier let’s say you decide you would like to pay off the remainder of your student loan debt. You will need $50,000 to pay it all off. You ask your advisor what you should do. His advice is no longer “conflict-free”. If you reduce your account by 50% his fee just went down 50% as well! He is motivated for you to keep your money in your account – not paying off debts.
Should anyone consider asset management?
If you don’t want to manage your investment accounts yourself asset management may make sense. Remember to look for the following when choosing an asset manager/financial advisor:
- Make sure your advisor is a fiduciary. A financial planner or advisor who is acting as a fiduciary has a legal commitment to act in their client’s best interest. Many organizations, including NAPFA, XY Planning Network and the CFP Board, have all members take a fiduciary pledge.
- You should receive ongoing financial planning as part of the AUM fees you pay. If your advisor leads and ends every meeting focused just on the market numbers you are probably not working with someone who is considering your entire financial picture when they give you advice.
- Your advisor should be focused on all of your life goals, not just retirement. They should want to know ALL of your goals for yourself and your family so they can help you make financial decisions to reach those goals.
- Make sure the fees are clear and that you check on them each quarter. Set a recurring reminder on your calendar for every 3 months to log into your account. Look at your fees in your most recent statement. It is important to remember what you are paying so you can determine if you are getting your money’s worth.
Alternatives to asset management
The majority of my client’s don’t need asset management. We review their 401(k) and investment accounts 3 times per year and I suggest changes they may want to consider. They log into their accounts on their own and make those changes. Having a financial planner monitor your investments with you can be helpful, but you can usually make the actual trades and changes yourself very easily. My fees are charged for financial planning and not deducted from your retirement accounts.
I do offer asset management services for my ongoing financial planning client’s who do not have time or interest in managing their accounts. I use very low cost funds and partner with First Ascent Asset Management, which charges a low, flat fee for each account.
Want more information about how I help my clients invest towards their goals without spending money on unnecessary fees? Schedule a call here.
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