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An EAM (External Asset Manager) is an independent advisor. They offer highly personalized client service. They charge a fee for advisory/management services. In addition, they do not participate in retrocession fees, which prevents conflicts of interest. These are advantages of an EAM, but not necessarily disadvantages. If you have concerns about the quality of service, you may want to consider an independent asset manager.
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EAMs are independent advisors
Unlike banks and other investment firms, EAMs are not affiliated with any one custodian. Their independence allows them to be flexible and adapt to changing custodian requirements. They may also offer their own products. However, the independent nature of EAMs requires them to maintain high levels of transparency, avoid conflicts of interest, and provide best-in-class products.
Unlike traditional investment firms, EAMs charge their clients a management fee that is fixed and non-variable. This fee is used to compensate EAMs for their services. Some EAMs also share commissions that their clients earn on their accounts. These practices are known as retrocession fees, and they can create conflicts of interest.
An EAM can be a single person or a team of advisors. They may also work under a multi-family office label. In this case, they source and monitor the best asset managers and report their independent evaluations to their clients. Another common model of an EAM is a family office, where a multi-family office has a number of Relationship Managers who are able to offer a broad range of investment services.
They offer a highly personalized client service
External asset managers, also known as Independent Asset Managers, are firms that provide high-net-worth clients with bespoke asset management services. These firms are generally smaller, and closer-knit, but cannot hold client assets in custody as private banks can. Instead, they have a range of custodian partners. Most private banks have dedicated teams that work with external asset managers.
A primary difference between EAMs and custodians is the independence of these firms. While most custodians provide similar services, EAMs have different business models. This means they are not tied to any one custodian and can adapt to changes in custodial requirements and investor needs. Furthermore, these firms often offer their own products. This means that clients can expect to receive transparent, best-in-class products and services.
They charge clients an advisory/management fee
Many external asset managers charge a fee to handle their clients’ accounts. The fees can be a flat annual fee or an annual percentage of invested equity, fixed-income securities, or cash. Some EAMs charge a combination of fees, with some charging 1.50% of invested equity and 0.75% of investments in fixed-income securities. These fees can add up to a considerable amount. It is important to find out what you are actually paying for and how much you are getting in return.
Most management fees are calculated as a percentage of the AUM of the client. Some firms quote a fee annually, while others bill on a monthly or quarterly basis. For example, if you have a $10,000 investment account and the advisory/management fee is 2.00% annually, you would pay $200 annually. If you have a smaller account and pay on a quarterly basis, the fee would be $50 per month.
Although this practice is still relatively new in Asia, it is well established in the USA and Europe. In Asia, there are now more than 160 independent asset management firms, managing an estimated US$91.5 billion of private wealth. The trend began in Europe, where private bankers began to leave banks to establish their own offices. As the Asian markets have matured and their wealth has increased, these external asset managers have seen a surge in popularity.
They do not engage in retrocession fees to avoid conflicts of interest
External asset managers (EAMs) do not engage in retrocession fees. Some of them charge advisory/management fees, while others share commissions earned on client accounts. Retrocession fees, which are common in the financial industry, can create conflicts of interest. To avoid such conflicts, EAMs should not engage in retrocessions.
Retrocessions, which are payments that wealth managers receive for introducing investors to new products, are a controversial aspect of the financial industry. They are paid by third parties, often investment funds, as a way to encourage a wealth manager to partner with them. They may also be paid by banks for distributing financial products to clients.
