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Asset Management

Asset Management refers to an organization, institution, or individual asset manager directing a client’s securities, assets, and cash. It is commonly a financial services company that will do this, and especially an investment bank like Morgan Stanley, Barclays, UBS, Julius Baer, or Goldman Sachs. Such a financial institution will provide highly researched and sought after investment advice and a wide range of investment services. These would include both a variety of alternative and traditional investment product offerings. Many of these will not be available to the typical retail investor.

The financial institution will hold the account and usually offers credit cards, check writing privileges, debit cards, courtesy margin loans, and an automatic sweeping of any available cash balances into a money market fund. Brokerage services are naturally a key cornerstone of this service. Family offices and high net worth and ultra-high net worth individuals as well as institutions such as trust, pension, and insurance funds will typically be clients of asset management firms.

Because the associated investment minimums that such services demand are often in the millions of dollars, the services are typically only available to the accounts of financial intermediaries, major corporations, government entities, and wealthy families or individuals. Their products are many and vast but focus on real estate, fixed income, international investments, and commodities. Diversification is a key cornerstone to the services and investment products that good asset management offers its clients.

As these well-to-do individuals and institutions deposit their considerable sums of money into their accounts at the firm, the money is swept into a money market fund straight away. This provides a far greater return than mere checking accounts or even savings accounts offer customers. The account holders will often have the choice of either a non-FDIC backed fund (with correspondingly higher returns) or a Federal Deposit Insurance Company backed money market fund that naturally pays less since it is considered to be risk-free.

One of the principal advantages to these accounts is that these firms offer a true one-stop shop service for all of their financial needs. This includes the convenience of check writing privileges, debit and credit cards, lucrative private investments, and more all under a single roof. Both their investment and their banking needs will be serviced by the single institution instead of needing to maintain separate banking and brokerage accounts.

It was thanks to the passing of the Gramm-Leach-Bliley Act of 1997 that permitted the repealing of the Glass-Steagall Act. This Great Depression-era legislation had stopped financial institutions from providing both security and banking services to clients in an effort to protect the clients from the investment banks’ rapacious greed and mis-investing of their funds.

It is always a helpful idea to look at a real-world example of the concept under discussion in order to better understand it. Consider the real-life case of investment bank Merrill Lynch, which was long the largest in the world until the Global Financial Crisis ended its near-century of successful independence and dominance in the field. Today they are a subsidiary of Bank of America.

Merrill provides its CMA Cash Management Account to meet the particular needs of its wealthy clients who want to pursue both investment and banking possibilities with only a single integrated account. This account provides customers with a personalized financial advisor as well. This financial advisor will deliver both advice and many investment options. Among these will be potentially highly lucrative IPO initial public offerings that Merrill often participates in, as well as foreign currency trades and even private investments.

The interest rates offered on such cash deposits will be tiered. This means that by linking together all deposit accounts, the eligible funds will aggregate together in order to qualify for the highest possible interest rate. The securities contained in this account will not be protected by the FDIC but instead by the umbrella of the SIPC Securities Investor Protection Corporation. SIPC will not save any owner’s assets from the risk of decline or failure, but instead safeguards them from the collapse of the brokerage firm which holds them on the clients’ behalves.

Back to the Merrill Lynch account example from above, the CMA account will include the ubiquitous check writing privileges and also global access to the investor’s cash via any Bank of America-branded ATM automated teller machines, all without having to pay transaction fees for this convenient service. There will also be wire transfers, internal fund transfers, and bill payment services offered. The online app is called MyMerrill and it permits the account holders to have access to their accounts and engage in many of the account maintenance and management functions from their mobile device or lap top. Those accounts with over $250,000 in assets which are eligible will avoid the two fees – the annual $125 cost and the $25 assessment on every sub account the client holds.

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