External asset management is a form of investment management that involves outsourcing some or all of the investment decisions and operations to a third-party service provider. External asset managers (EAMs) are independent professionals or firms that offer customized and tailored investment solutions to their clients, such as high-net-worth individuals, family offices, foundations, endowments, pension funds, etc.
External asset management can offer many benefits to both investors and EAMs, such as:
- Access to expertise and resources: External asset management can give investors access to the expertise and resources of EAMs, who have specialized knowledge, skills, and experience in various asset classes, markets, strategies, and products. EAMs can also leverage their network of contacts and partners, such as banks, brokers, custodians, research providers, etc., to provide better service and value to their clients.
- Flexibility and customization: External asset management can give investors more flexibility and customization in their investment portfolios. Investors can choose from a wide range of EAMs that suit their needs, preferences, goals, and risk profiles. Investors can also adjust their portfolios according to changing market conditions or personal circumstances with the help of EAMs.
- Cost efficiency and transparency: External asset management can reduce the costs and increase the transparency of investing. EAMs typically charge lower fees than traditional asset managers, as they have lower overhead costs and operate on a performance-based compensation model. EAMs also provide clear and detailed reporting and communication to their clients, ensuring accountability and trust.
How Does External Asset Management Work?
External asset management works in the following steps:
- Step 1: Selecting an EAM: The first step is to select an EAM that matches your investment objectives, preferences, expectations, and budget. You can use various criteria to evaluate and compare different EAMs, such as their track record, reputation, credentials, fees, services, etc. You can also use platforms such as [FinRoad] or [EAM Hub] to find and connect with EAMs around the world.
- Step 2: Signing an agreement: The second step is to sign an agreement with the EAM that outlines the terms and conditions of the relationship. The agreement should cover aspects such as the scope of services, the investment strategy, the risk profile, the performance targets, the fee structure, the reporting frequency, the confidentiality clauses, etc.
- Step 3: Opening an account: The third step is to open an account with a bank or a custodian that will hold your assets and execute your transactions. The account should be in your name and under your control. The EAM should have a limited power of attorney (LPOA) that allows them to make investment decisions and operations on your behalf within the agreed parameters.
- Step 4: Transferring funds: The fourth step is to transfer funds from your existing accounts or sources to your new account. The amount of funds you transfer depends on your investment plan and budget. You should also consider the tax implications and regulations of transferring funds across jurisdictions.
- Step 5: Managing investments: The fifth step is to let the EAM manage your investments according to the agreed strategy and objectives. The EAM should monitor the market conditions and performance of your portfolio and make adjustments as needed. The EAM should also communicate with you regularly and provide you with reports and updates on your portfolio.
Conclusion
External asset management is a form of investment management that involves outsourcing some or all of the investment decisions and operations to a third-party service provider. External asset management can offer many benefits to both investors and EAMs, such as access to expertise and resources, flexibility and customization, cost efficiency and transparency. External asset management works in five steps: selecting an EAM, signing an agreement, opening an account, transferring funds, and managing investments. If you are interested in external asset management, you can contact us or visit our website for more information.
