RETAIL ASSET MANAGEMENT OVERVIEW 

Retail Asset Management is the professional management of various securities and assets such as stocks, bonds, and real-estate, to meet specific investment goals of either institutional or individual investors. A financial institution will manage client's investments where that institution will make decisions on behalf of its clients, simultaneously allowing them exposure to a wider range of different product offerings that they may not have been eligible to invest in otherwise. Financial services companies who manage assets are often categorized as asset management companies themselves or they can be, and often are, divisions within an investment bank. 

INVESTORS MAY BE INSTITUTIONS OR PRIVATE INVESTORS 

Institutions: In general, these corporations invest available capital as it can achieve better returns than if the capital were left in a traditional bank account. Insurance companies invest their ‘reserve' which is the money they must set aside to pay future claims. Pension (or retirement) funds are a major player in the institutional investment market, as well. The 300 largest pension funds collectively hold about US$6 trillion in assets. In 2008, Morgan Stanley estimated that pension funds world-wide hold over US$20 trillion in assets, the largest for any category of investor. Other institutions also participate in asset managment, such as public or private universities, investment trusts, local, and state and federal government agencies, etc. 

Private Investors: Private individuals invest both directly via investment contracts and more commonly via collective investment schemes, i.e. mutual funds, ETFs, etc. 

Retail Asset Management is often referred to as (and may include): Investment Management, Fund Management, Wealth Management and Portfolio Management 

INDUSTRY PROFIT

Investment management is considered a "financial service". Many of the world's largest companies are at least, in part, investment managers and employ millions of staff and create billions in revenue. The asset management industry controls around $64 trillion globally, having grown by roughly 10% annually over the past decade. Investment Managers usually charge 1.5 - 2 % of the assets under management. Hedge funds, for example, usually charge 2% management fees and 20% performance fees. The beauty of the industry, for its incumbents, is that as markets tend to rise over the long run, their fees increase even though the cost of managing money does not. According to the Boston Consulting Group, operating margins in the investment management industry are more than 40 percent. Over time, according to some estimates, Fund Managers raise their fees by double digits, up to around 15 percent a year. On the other hand, revenue is directly linked to market valuations, so a major fall in asset prices causes a precipitous decline in revenues relative to costs. Above average fund performance is difficult to sustain, and clients may not be patient during times of poor performance. Still, the expense of using asset management services is high enough that it really restricts the function to wealthier individuals.

Private Wealth Management: Private Wealth Management and Private Banking are usually accounts divided into a specific division of asset management firms. These are investors with 10 Million dollars or more to invest and are handled by more Senior Investment Managers. These investors get more access to investment research, can have customized client facing trading systems designed specifically for their needs and have unlimited access to their Investment Managers. Private Wealth Management is heavily consolidated, the largest 10 firms managing more than 75% of assets in this segment. Goldman Sachs currently manages the investments of 45% of the Forbes 400 list of wealthiest individuals. 

FUTURE OF RETAIL ASSET MANAGEMENT 

The major contributing factors which will influence future changes in Retail Asset Management include: 

• Pension deficits have increased and therefore more people are planning for their future financial needs. Individual investors will likely be increasing their focus on investment management outside of the traditional pension plans. 

• The credit crunch will lower returns in the short-term because there will be less leverage available to Fund Managers. 

• Many large financial conglomerates, like Citi and Merrill Lynch, sold off their wealth management divisions before and during the economic downturn. Even as the economic rebound has taken hold companies such as UBS have been limiting their investment in wealth management divisions. As the credit crunch continues and potentially pushes returns lower, bigger players could downsize their investment management offerings even further. 

• According to research conducted by IBM, the global opportunity for asset management growth is large, but it won't necessarily be found in the same old places. Worldwide investable assets are expected to double by 2015 to almost US $300 trillion. However, 60 percent of this future growth is coming from non-traditional places, such as India and China.

CAREER PATH & CORPORATE STRUCTURE

Each financial company has a culture all their own. One asset management firm might be a corporate giant with ridged rules and a very structured hierarchy. Another might be a team of 300 of the top computer science and mathematical brains coming up with algorithms for proprietary trading on behalf of their clients. Another might be a ‘boiler room' atmosphere where they sell stocks on behalf of another interest for a margin or fee.

Below is an example of the general hierarchy throughout the industry for some of the larger asset management firms, however, keep in mind that every firm titles things differently. A Senior Vice President who leaves a company like Citi might be at the level of Vice President at a Goldman Sachs or Morgan Stanley. Not because of the nature or quality of the business at each firm but because of the difficulty of obtaining such a title at a Goldman Sachs versus a Citi. To sum up, not all titles are transferable from company to company. The following hierarchy is true whether you are in the front office as a Trader or in the back office reconciling trades or if one is in technology, keeping up the trading systems.

Some common seniority levels seen in asset management companies:

Analysts: Analysts are usually recent college graduates and are in a trainee position or are an Assistant to the more senior staff. Think of them as the apprentice to the blacksmith. Depending on their background (education, internships, etc) they will most likely spend two years in this position learning the business, depending on how complicated the business they are entering is and how quickly they adapt and learn. Some companies tend to have a much quicker transition period. In some cases Analysts will not be asked to advance and will most likely be asked to leave. In the case of a Broker, this is most likely someone who spends their entire day cold calling to gain new business. For a Software Developer, this level of person might simply administer an already running system and make small changes to the code.

Associate: Associates are usually Analysts who have elevated to the next level or Masters level graduates who come in at a more senior level. These are usually advanced business, finance, math or computer science degrees, mainly from the top universities. There is no timeline for how long someone can stay as an Associate. In some lines of business and in some companies, someone who is a specialist, and not appropriate to move into management, will keep the Associate title for their entire career. At other firms, it is almost unheard of not to get an Associate Vice President, Vice President or Director title after 5 years as an Associate, no matter what level you have risen to or what your contribution.

Vice President and Director: Some companies require that to be promoted or hired in as a Vice President or Director, one must be managing a group or division and have tenure with the firm or within the industry for a number of years, which is usually considered 10+ years. In general, VPs manage the day to day of Analysts and Associates and possibly other VPs or Directors. However, if you are one of the top Traders on a specific desk or are one of the top Brokers in a division, you are probably going to get a VP title and can make more money than Executive or Managing Directors in other divisions. The Vice President or Executive Director level is normally the most senior level position someone is going to see in their career unless they are either a top performer in a division or have the aptitude to lead the division.

Executive Director and Managing Director: Executive and Managing Directors are the upper echelon of the financial world. Many companies skip right over the ED title and go directly to MD. Usually, if you have the ED title, it is because you are managing a very large group or initiative within a division but are not the head of that division. An example of a Managing Director would be the head of Mortgage Backed Securities Trading for the Americas or the head of Equity Trading Systems Technology. The keys to moving up to this level are revenue generation, or savings for some divisions, individual and group performance, and in many cases, who you know and how lucky you are.

Large Retail Asset Management firms generally consist of the following task-specific positions and divisions:

Fund Managers: People who direct investment strategies. A fund manager often moves up from either investment research or investment advising. Depending on the firm, a Fund Manager can also be, in some ways, a salesperson of their funds future performance. In these cases, it is more likely that they will come from an Investment Advisor/Broker background. In most other cases, they will come from the investment research path. In this position, you are responsible for managing a specific fund or fund of funds. This can be very specific to something like technology stocks or even more specific to the semiconductor industry or less specific like a general large or small cap fund. Depending on which firm you end up at, you may spend a lot of your time engaging with larger clients of the firm, explaining your strategy. You may also be responsible for maintaining a book of business. The bottom line, however, is making sure your fund is profitable.

Investment Research: Analyze specific verticals in the market to advise on trading strategy. This position is for the very analytical type of person. You can be in charge of making very detailed reports of specific companies to specific industries and making recommendations on whether a company is a buy, sell or hold. You will also look at market trends to help you in making these decisions. Many larger firms sell this proprietary information to other firms as well as using it to pitch new clients and set strategy for existing ones. In this position, you will spend alot of time looking over company balance sheets, talking with executives and listening in on conference calls where company leaders give financial results and discuss future strategy. To get into investment research as an Analyst, expect to start at the bottom. They are looking for analytical and mathematical types who have financial and accounting experience with strong verbal and written communication. You will spend your first two to three years as a Junior Analyst or an Assistant to a more Senior Analyst.

Back Office: Track and record transactions and fund valuations. The various operations positions within financial firms are usually known as back office. These groups are in charge of making sure that everything that the front office (brokers and traders) do is followed through on and runs smoothly. In some firms, the term back office can mean everything from Trade Support to Accounting and Finance to even Human Resources and Risk Management. The more specific term refers to trade support, execution, and settlement. The day-to-day of this position may include looking at large amounts of data for discrepancies and working out the reasons. They may also be responsible for reconciling a Trader's daily profit-and-loss statements or maintaining an accounting system. Because of the advancements in technology to handle these tasks and the shifting of these types of positions to low cost parts of the world like India and China, these positions are becoming fewer and fewer. Also, back office professionals might support the institution via Human Resources, Marketing, PR and Administration. 

Compliance Staff: Ensure accord with legislative and regulatory constraints. If you are interested in working in the compliance group of an asset management firm, investment bank or insurance company, you will want to be very detail oriented and have a respect for rules and regulations. This group is in charge, more or less, of making sure the SEC, FINRA, etc, don't find any discrepancies in the operations of the firm. There are many different compliance areas including Anti-Money Laundering (AML), Trading Practices (monitoring) and training of best practices, rules and regulations. The duties of each position can vary. If you are in AML, you will spend your time looking at transactions from your customers and see if there are any redflags, like someone buying a large quantity of stock with cash. In monitoring you are responsible for, among other things, looking at the Brokers and Traders within your firm to make sure they aren't up to "no-good" and that they are following the SEC rules.

Information Technology: Manage and develop systems and infrastructure. Good Technologists are in high demand in the financial services sector. Many of the most talented Software Developers in the world have helped create state of the art high volume trading systems, algorithmic strategy platforms and high availability infrastructure backbones for the financial industry. They are also some of the highest paid Software Developers in the world. Information technology positions within financial firms can also be some of the most stressful positions. It is the job of Technologists to make sure all trading systems are up 100% of the time during trading hours and through trade confirmation and reconciliation. When these systems are down for just seconds, millions of dollars are lost. Some of the most in-demand positions in technology for financial companies include Trading System Software Developers, Trading Desk Support, Application Support Engineers and Network and Systems Engineers. Many companies employ proprietary systems as well as proprietary development languages. One of the most important things to have to get a position in technology at these firms, aside from being a brilliant Technologist with a top computer science education, is that you understand the various products within finance. Just like the Investment Advisors/Brokers, Technologists often specialize in one financial product line. A Software Developer might specifically develop corporate bonds trading and pricing systems while another might work closely with the business to implement their quantitative modeling strategy. Lastly, because the technology is closely integrated with the business, excellent communication skills (and sometime a thick skin) is required for these positions.

Some of the main systems commonly found in Asset Management firms include:

• Trading Systems: Involving various products including equity, fixed income, commodities, algorithmic and quantitative trading, foreign exchange, etc.


• Risk Management Systems: Systems that measure the risk of positions that clients have with the firm as to avoid possible losses when their clients are borrowing money from the firm to take positions in the market. Risk systems are also used to measure the exposure of the firm's own position.

• Back Office Systems: These systems include trade reconciliation and processing, as well as, client billing and client statements, among others.    


• Corporate Systems: These systems can include Accounting, Human Resources, Purchasing, Corporate websites, etc.   


• Client Facing Systems: These can be fully executing trading systems, like those of the online brokerages like TD Ameritrade or E*Trade. These can also include systems like research portals, stock quote systems or even online account systems so clients can view their positions and statements.    


• Client Relationship ManagementSystems(CRM): These systems are used by brokers to manage their client relationships. They can be very complex systems when compared to other industry CRMs.

Brokers/Investment Advisors: Engage and advise clients (individuals and institutions). While the term Stockbroker is still in use, it is more commonly referred to as simply "Broker". Roles similar to that of a Broker include investment advisor, and financial adviser. A Stockbroker may or may not also be an Investment Advisor, and vice versa. For the larger and more prestigious asset management firms, most Brokers are also Investment Advisors. A transaction on a stock exchange must be made between two members of the exchange - an ordinary person may not walk into the New York Stock Exchange, for example, and ask to trade stock. Such an exchange must be done through a Broker. Whether a Broker only executes the trades of a client or acts as an Investment Advisor, a Broker can be thought of as a financially educated Salesperson. They are the ones who bring clients into the firm and manage the relationships of current clients. They may specialize in a specific product or client base, i.e. managing a corporate bond trading for pension funds or managing equity positions for an individual investor.

No single Broker can be an expert in all financial products as they range from the simple to the more complicated credit default swaps, interest rate derivatives and various bonds and foreign exchanges. Early in the career of a Broker, especially before they have an established client base or ‘book', they will spend the majority of their time on the phone. Hours before the market opens, to hours after it closes, a Broker will be on the phone with either current or potential clients advising them of market conditions and the opportunities or risks for their portfolio. They may also spend hours into the evening entertaining clients. Successful Brokers have a lot of options for their career path. A more analytical Broker might find a career in investment research. In those positions, they get the opportunity to set a strategy for the trading advice they give to their clients. Less frequent, but still a possibility, is to become a Proprietary Trader for the asset management firm. In this position you will be responsible for trading securities on behalf of the firm. These positions can be very lucrative but extremely hard to obtain. Some experienced Brokers with a good book of business start their own investment advisory/asset management firm. Another path might be to become a Fund Manager.

There are three major types of stock-broking services:

1.   Execution-only: The Broker will only carry out the client's instructions to buy or sell.

2.   Advisory dealing: The Broker advises the client on which shares to buy and sell, but leaves the final decision to the investor.

3.   Discretionary dealing: The Stockbroker ascertains the client's investment objectives and then makes all dealing decisions on the client's behalf.

STRATEGIES IN ASSET MANAGEMENT

Because asset management divisions are always coming up with new ideas and products to use in their client's diversified portfolios, the strategies they use to operate have a tremendous impact on their ability to be profitable and remain competitive in the marketplace.

PERFORMANCE MEASUREMENT

Fund performance is the best predictor of fund management success and is always measured very carefully. For this reason, institutions measure the performance of each fund which they manage. The firms who specialize in the performance of these firms collect and organize industry data, usually quarterly, to demonstrate how each firm measures up to its counterparts. 

Some investment firms try to persuade its clients to assess performance over longer periods of time in an attempt to even out any short term fluctuations in their performance and demonstrate stability. This is not very easy to do because most clients will want to see performance numbers immediately and frequently and, without the availability of a performance rating, some asset management companies might lose clients to those institutions whose numbers are in fact published.

There are multiple other investment strategies utilized by fund management companies that the institution can implement and the styles are chosen based on individual client needs in relation to risk and return expectations. For example, growth, value, market neutral, small capitalization, indexed, etc⁶. Each strategy has its distinctive features and unique risk characteristics associated with it. For example, growth styles (buying rapidly growing earnings) have proved to be especially effective when companies who are able to display such growth are rare. Conversely, when such growth is plentiful, then there is evidence that value styles tend to outperform the indices particularly successfully⁵. Universally, the more return, which is sought after, requires a riskier strategy selected¹.

There are three types of stock-broking services which can also be considered strategies in the sense that most asset management companies will select a method based on which they believe will help them maximize their bottom line and be more appealing to a particular client ².

1. Execution-only: The Broker will only carry out the client's instructions to buy or sell.
2. Advisory dealing: The Broker advises the client on which shares to buy and sell, but leaves the final decision to the investor.
3. Discretionary dealing: The Stockbroker ascertains the client's investment objectives, then makes all dealing decisions on the client's behalf.