7 Important Things To Consider When Choosing An External Asset Manager

Centro LAW 7 IMPORTANT THINGS TO CONSIDER WHEN CHOOSING AN EXTERNAL ASSET MANAGER centrolaw.ch

External asset managers (EAMs) are professionals who manage investments on behalf of their clients without taking their assets into custody. When working with an EAM, you maintain your banking relationship, your bank accounts remain in your name, and you usually grant a limited power of attorney to the EAM to manage your investment portfolio and asset allocation. They are independent of the custodian bank and thus well positioned to align with their clients’ interests. Understand the external asset manager’s offering The core service of external asset managers is investment management to implement diversified portfolios aligned with their clients’ risk profiles. An EAM considers your financial situation and goals to design and implement customized investment strategies. However, many provide additional services such as financial planning management of retirement accounts tax planning wealth planning insurance planning

In addition to their independence, their services should be personalized and correspond to your needs and objectives. EAMs usually work with several custodian banks and obtain preferred conditions for their clients. This will also allow you to diversify your asset booking by working with various banks in different jurisdictions. Furthermore, an EAM should ensure fast communication and quick decision times. Do you need investment advice or investment management? This makes a difference in terms of services and costs. You should ask yourself how much advice and guidance you need when making investment decisions. You must execute transactions with your custodian bank if you receive investment advice. Under an asset management agreement, the EAM will perform all transactions based on a power of attorney to manage your portfolio actively.

Know how much they charge Understanding the fee details before choosing an external asset manager is essential. Some pricing is based on assets under management, performance, and transactions, and you’ll also find fixed fee arrangements. Still, prices vary widely, so ensure you find out precisely what you’ll pay upfront. This includes any transaction costs, ongoing fees, and other charges. Ideally, an EAM will not receive any retrocessions or other remuneration from custodian banks and product manufacturers. With that, they avoid potential conflicts of interest and guarantee that you get access to the best products and services. Check their track record A well-established EAM will have a strong track record. Look at their performance history and see what kind of returns they’ve been able to generate under specific risk parameters. Depending on your investment strategy, you may want to work with several specialized EAMs to cover niche requirements. Although it is convenient to work with just one counterparty, the collaboration of individual specialists may lead to better results.

Assess their ecosystem You’ll have to work with various service providers to implement a comprehensive wealth management framework. If asset management is at the core of your framework, the EAM needs to plug into interfaces with other service providers. While this is usually standard with custodian banks, you should also assess which other service capabilities can be integrated into the EAM setup. This requires advanced technology and the ability and structure to collaborate with other service providers such as lawyers, accountants, and strategy advisors and build lasting partnerships. Your goal should not be a siloed and fragmented service landscape but an integrated and comprehensive wealth management framework. Implement a control function This is often overlooked, but you need a control function to ensure execution according to your investment strategy. Some specialized providers assist you in selecting and monitoring external asset managers. You can also work with a multi-family office to control the investment process and deviations from the investment strategy. With such a setup, you keep a comprehensive and consolidated overview of asset allocation, performance, costs, and risks.

Avoid dependencies Ideally, you’ll find the right external asset manager for a trusted and long-term collaboration. Still, it would help if you avoided dependencies. As mentioned above, you can collaborate with several providers in a framework you determine. If performance is not as expected, sometimes the only option is to change a service provider. Thus a structured collaborative framework leveraging technology provides you with the flexibility to change service providers if things go wrong. Do You Need More Help? Contact Centro LAW to learn more about getting the most value from your individualized wealth management solutions.