Wealth Management Mandates: Definition, Meaning & Advantages

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Managing one’s own assets is a major challenge, especially if the assets are not only to maintain their value but also to increase it. For this purpose, part of the assets must be invested in securities, real estate or other assets.

An asset management mandate represents a lucrative opportunity to have the assets managed by experts according to one’s own ideas.

The following article explains the possibility of asset management in more detail and offers a comparison of different investment forms.

Quick overview: The most important things at a glance

  • Expert asset management agreement
  • Asset managers are authorized by the client to create and manage a portfolio with a fixed amount of capital
  • Management according to the agreed investment strategy
  • Asset management saves demanding and time-consuming work
  • Mandate is exercised according to the individual agreements and the predefined strategy

Asset management mandate definition

An asset management mandate confers the power to fully manage the agreed assets by the asset manager. In doing so, the managers make active investment decisions by buying and selling stocks, funds and other assets, thus investing your capital over a specific investment horizon.

The agreement of a strategy depends on the client’s goals and risk tolerance and determines the measures of management. Furthermore, there are different types of asset management, which can differ fundamentally in their characteristics, depending on the investment assets and risk tolerance.

The asset manager acts independently and without the participation of the client in the agreed period of time. Thus, it is possible to react quickly to changes in the market. If a need arises, this may also mean changing the general investment process.

The making of individual decisions and the independent making of purchases and sales also represents the fundamental difference compared to an advisory mandate. In the case of an advisory mandate, the advisor only has an advisory function. The final investment decisions, on the other hand, are made by the client himself.

What types of asset management mandates are there?

There are many different types of asset management. Which one is right for you depends largely on the agreed investment strategy. Furthermore, the risk tolerance as well as existing asset reserves also determine the optimal type of asset management. The best-known forms of investment are examined in more detail below:

Mandates

Asset management with index investments

Many funds are based on an index and try to replicate or even outperform its price performance. However, only a few of these investment funds actually succeed in doing so. An investment in indices with an adjusted risk orientation is therefore a proven asset management strategy.

Depending on the investment strategy, assets are invested in indices that adequately reflect the relevant market. The portfolio is then managed for profit by means of intelligent balancing. This means that depending on market developments, the portfolio is always adjusted so that it still reflects the selected investment strategy.

Asset investments with investment funds

In this investment process, the assets are invested in a diversified portfolio. The respective proportions are determined by the investment strategy and risk tolerance. Actively managed funds are used to supplement the portfolio, either to increase the potential return or to reduce the overall risk of the portfolio. Usually, the individual securities are distributed across regions and sectors in order to compensate for the fluctuations in value that are customary in the market.

Asset management with individual securities

The management of a portfolio with individual securities is a variant that focuses on individual securities such as shares or certificates. In this case, investments are usually made with a higher risk tolerance due to the lower diversification in order to achieve targeted higher returns. However, the risk can also be broadly diversified and specifically reduced in the case of management with individual securities. This form of asset management offers the highest possible degree of individualization, as individual companies can be selected and not a whole package, as is the case with ETFs or funds.

Asset management BVG-oriented

BVG describes the law for the minimum requirements for occupational pension provision. In common usage BVG is often used as a synonym for pension fund. A BVG-oriented asset management therefore describes a portfolio that is oriented towards the average of Swiss pension funds. This includes investments in stocks, bonds or even real estate. In the area of this management, the portfolio is also constantly adjusted in response to market developments.

Asset management according to discretionary mandate

Depending on the amount of investment assets and the desired investment strategy, individually designed asset management mandates can also be agreed. Since such mandates require more effort both in their creation and in their management, they are usually only recommended above a certain level of investment assets.

In a so-called discretionary mand ate, an investment strategy is developed together with the client. This sets a framework that determines how granular the portfolio is designed and in which assets it is invested. At this point, both the amount of the investment assets and the personal risk tolerance are taken into account.

What rights or decision-making powers are delegated with these mandates?

An asset management mandate places numerous rights and duties in the hands of the manager. This entails a high level of responsibility and therefore also requires a great deal of trust on the part of the investor. The interest of the manager is therefore to create trust by providing the most professional, transparent and responsible service possible.

Vertrauen

What decisions can the administrator make independently?

The transfer of an asset management mandate confers numerous decision-making powers on the manager. These are necessary in order to be able to manage assets as profitably as possible. The mandate therefore includes, in particular, powers to buy and sell securities. This is carried out by the administrator independently and without consultation with the client.

Compliance with the legal system

As the manager of a third party’s assets, numerous legal regulations apply. Great importance is attached to compliance with Swiss laws and regulations. In addition, the handling of third-party assets requires internal regulations, compliance with which must be strictly observed.

The legal system comprises numerous regulations, which include complete documentation of the asset management. Furthermore, the manager has a duty of disclosure, which relates in particular to the risks of the investment. In addition, compliance with investment guidelines is an important factor in asset management. Read also our article on digital asset management.

What else is usually reconciled?

Mandatory reconciliations are made as part of the management process. Furthermore, individual agreements and the respective investment strategy can also add further reconciliations. Since the risk appetite is a central factor in investment management, the definition of a risk framework is of particular importance. This reconciliation is recorded accordingly and provides the manager with the extent of risk diversification.

Who is liable in the event of a loss?

Since there is a comprehensive duty of disclosure within the framework of the contractual agreement, the investor is aware that an investment can involve losses. In this respect, the asset manager must act to the best of his knowledge and belief and in accordance with the prescribed laws and guidelines. Furthermore, requirements such as those relating to risk diversification and due diligence must also be complied with.

In the event of a breach of certain duties, the asset manager must pay for possible financial losses. However, the risk of asset loss due to general market fluctuations and developments is known to the investor. The latter therefore bears the risk and is generally liable for any losses incurred as a result. However, a possible duty to provide information in the event of a certain loss must also be observed here, which must be complied with by the manager.

Why are there asset management mandates?

Asset management mandates have been successfully taken on for many years and enjoy a high level of popularity. There are numerous reasons for this high demand. There is no denying the advantages of having your own assets managed by experts.

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Expert management for high returns

The management of one’s own assets by specialists is probably the greatest advantage that asset management brings. At any time, the portfolio is monitored and managed by people with expertise and great experience. In this way, action can be taken quickly. Furthermore, the right decisions are made at the right time, as experienced asset managers are better able to recognize market developments and draw the right conclusions.

High time savings

Another major advantage of having your own portfolio managed by a third party is that it saves time and effort. It is not only the acquisition of the necessary knowledge that takes a lot of time. In particular, the constant monitoring of the market as well as political and economic changes require a lot of effort.

Avoiding one’s own emotions

Dealing with one’s own assets requires a high degree of discipline. This is especially true for activities that involve a certain degree of risk. Therefore, investors often tend to let themselves be guided by emotions. In the field of securities trading, this can lead to wrong decisions, which can have negative consequences. The management of the portfolio by an independent person leads to a detachment from this emotional attachment and allows a complete focus on the factual level.

For whom are asset management mandates a suitable tool?

Wealth management is perceived by a wide variety of groups of people. In terms of personal and financial situation, asset management offers numerous possibilities. This is sometimes due to the great advantages as well as to the variety of different models that can be adapted to the individual investment strategy.

Wealth mandates

The idea of expert management according to one’s own specifications

The basic idea behind asset management mandates is that individuals without the necessary expertise to manage and grow an investment asset can successfully operate a portfolio. Since many individuals do not have the required knowledge but still want to create an asset, the idea of third-party management by experts was born. These experts can manage the assets depending on the current market developments and the personal ideas of the investor.

More attractive for higher investment assets

The asset management mandate comes with fees. These fees can often be reduced for higher investment assets, as many asset managers have a tiered pricing model where the percentage fee decreases as assets increase. Therefore, asset management is more worthwhile for people who want to have higher assets managed. The fee also depends on the type of asset management chosen.

FAQ

What fees are charged for asset management via a mandate?

The fees for an asset management mandate cannot usually be given as a flat rate, as they depend on several factors. Sometimes it depends on how complex the management of the agreed model is. In addition, the amount of the assets and other factors play a role.

What alternative approaches are there to asset management mandates?

The best-known option for asset management support is investment advice. This form is not a complete management, but only an advice for own decision making.

Who offers an asset management mandate?

An asset management mandate is offered by numerous independent asset managers. These can also join together in various legal forms and usually offer their services independently of banks. Banks themselves, including major banks and private banks, often offer asset management services in addition to investment advice.

Asset management better through a bank or independent managers?

Banks often have comprehensive products, which are gladly offered during an investment consultation. Banks often enter into a conflict of interest if they also use the bank’s own products in asset management. Independent asset managers, on the other hand, specialize in asset management and do not offer their own products. This means that there is no conflict of interest and the risk for the investor can be reduced.

Is it worth hiring an asset manager despite incurring fees?

The fees for an asset manager also depend significantly on the investment assets and the chosen financial instruments. The high volume of orders and experience indicate that this is a form of value investment that definitely pays off in comparison to other forms. The certainty alone that one’s own assets are in professional hands and the personal service is already a reason for many to decide in favor of asset management.

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