There are entirely different sets of skills that differentiate asset managers and financial advisors. To illustrate this comment I refer to the different capabilities required in a war. The financial advisor can be compared to the troops out in the field and trenches while the asset managers sit at headquarters strategising and making decisions that are then passed on to the troops.
Most investors do not understand the difference between the role of a financial advisor and an asset manager. The financial advisor’s role is to first understand an individual’s short-term, medium-term and long-term requirements, then to evaluate the current investments and finally, to incorporate this evaluation into financial plan recommendations. These recommendations ensure that the journey of the investor is realised, while taking into account the investor’s need for growth and/or income. All of this determines the risk and asset allocation that the investor should take. Once this is done investments are placed with asset managers who select the appropriate funds based on the client’s needs.
Asset management is the professional management of various securities and assets on behalf of investors. Asset managers compile market research and decide on the right mix, balance and percentages of assets. They are often large companies, such as unit trust or pension fund companies. Asset management companies that have performed consistently well will often be more popular than those that have under-performed. Having said that, in the financial
services industry, past performance is no indicator of future performance.
The investment advisor faces an equally challenging time, as this is the individual or firm that advises clients on investment matters on a professional basis. The investment advisor must maintain contact with clients at all times and be able to offer advice in both the good and bad cycles. They must understand what is happening in the market and economy in order to advise their clients on the right way forward. The investment advisor is also the person who helps determine the risk tolerance of investors and, accordingly, presents them with a variety of assets and investments into which they can choose to invest.
Asset management fees are normally highly complex and varied. Most asset managers have a fixed fee structure and, occasionally, some will add a performance fee component. For example, it is obligatory for every unit trust in South Africa to have registered their fee charges with the Financial Services Board (FSB) and some have multiple classes of fees. Fees will vary from a straightforward fee of 0,5% per annum to a specialised equity fund which will charge up to 3%. The investment adviser can charge in one of two ways – either a flat contracted fee, for example on an hourly basis, or an advisory fee based on a percentage of the assets under management, in agreement with the client.