Levels of Responsibility in Asset Management: Finding Your Ideal Asset Protection Partner

If you want to keep your valuable belongings safe from different risks, think carefully about who you can trust to handle them. Finding a skilled professional who can protect and grow your assets is very important.

In the world of asset management, a diverse pool of experts comes into play, reflecting the varied nature of assets and the unique preferences of each owner when it comes to managing their capital.

Let’s take a closer look at the important roles played by professionals and organizations in charge of asset protection. We’ll also discuss important things to consider when choosing the best partner and understand what each expert is responsible for.

Responsible parties in securities management

Let’s delve into the most complex category of assets, often leading investors to seek the expertise of specialized managers. This category comprises a diverse range of securities, including stocks, bonds, ETFs (exchange-traded funds), deposit certificates, and other investment products. In developed countries, approximately 90% of clients entrust professionals to handle securities transactions on their behalf. The preference is reasonable, given the stringent legislative regulations that govern the market. Therein, a substantial portion of buying and selling activities is restricted to qualified (or accredited) investors.

An accredited investor is a market professional that may be either a company or an independent expert with a special license from the Central Bank of their country. This license confirms their ability to manage assets responsibly.

Below, you will find the list of experts and entities that belong to qualified investors:

• brokers
• dealers
• investment advisors
• investment funds
• asset management companies
• certain commercial or government banks that offer securities trading services
• clearing organizations
• credit institutions
• private pension funds, and more.

Essential documents to request from clients before starting collaboration

Here are the documents that confirm the qualifications of a professional securities market participant:

• Diploma in finance or economics from an accredited university.
• International professional certificates, such as CFA (Chartered Financial Analyst), CIIA (Certified International Investment Analyst), or FRM (Financial Risk Manager), depending on their chosen specialization.
• License issued by the National Bank.
• Proof of membership in a self-regulatory organization (SRO) overseeing compliance with exchange trading rules and establishing professional standards. Different countries have various SROs, for instance, FINRA (Financial Industry Regulatory Authority) in the United States. SRO membership is a crucial factor to consider when selecting a manager. In case a consultant fails to inform their client about potential investment risks or recommends one strategy while investing in different securities without a word about it to the above client and it leads to losses, such client has the right to file a complaint with the SRO for a breach of contract terms.
• Reports that show how much money the organization manages. A higher amount of managed assets builds trust among other clients, enhancing the company’s reliability and potentially reducing intermediary commissions.

Starting point: how clients and asset managers begin working together

It all begins with the asset manager having a conversation with the client to understand how much risk they are comfortable with and what their financial goals are. Then, the client can choose between 2 options: a safe low-profit approach with less chance of losing money, or a more daring strategy with the potential for higher profits. Once the client decides, the asset manager then proceeds to create a customized investment portfolio for them.

When the client’s preferences are clear, the asset manager compiles a comprehensive report that shows the assets the client has provided, including any securities they have bought or funds set aside for future purchases.

Before moving forward, the investment expert makes sure the client knows the exact fee they will be charged for asset management services. Additionally, they explain who will be handling taxes on the profits from investments and securities transactions as well as when those taxes shall be paid.

Once the initial discussions and assessments are over, the client and the asset manager sign an asset management agreement. The above agreement clearly outlines what each party is responsible for. It sets the schedule for receiving the corresponding progress reports from the asset manager.

Responsibilities of an asset manager

A responsible asset manager must always prioritize the best interests of their clients by carefully choosing investment strategies that offer both profits and low risk. Working with asset management companies is beneficial for many capital owners because these experts have access to special options that others don’t. However, asset manager’s responsibilities have limits because some risks are beyond their control. Here’s what these risks include:

• Market risks: Here belong price fluctuations, potential issues with securities issuers like bankruptcy, and technical glitches in exchange software.
• Systemic risks: These include major risks like the bankruptcy of a systemic bank or a significant decrease in the value of the national currency.
• Asset liquidity risks: In the absence of suitable market offers, the asset management company may encounter challenges in acquiring or selling securities at favorable prices due to a lack of interested buyers.
• Legal risks: These pertain to changes in legislation, key tax rates, the removal of benefits, or the impact of political sanctions.
• Yield risks: Securities, especially those with higher risk, do not guarantee a 100% return. As a result, your asset management company cannot be held liable if the resulting yield is lower than deposit interest rates, below inflation, zero, or even negative.

Who keeps assets under custody?

When it comes to asset custody and protection, you should know that these are different services and they are provided by different specialists.

The job of keeping assets in custody (without actively managing them) is entrusted to custodians, qualified custodians, depositories, or trustees.

Custody fees

If a client directly asks the custodian for help with asset custody, they will be charged a fee for the service. In the case of asset custody, however, where a custodian must be involved as provided for under the law, the client pays the asset management company instead. The asset management company then takes care of settling the payment with the custodian on behalf of the client.

Who manages other assets?

Using an accredited investor to manage securities is an effective way to passively grow your wealth without much effort. However, assets include more than just securities. So, many clients prefer to get help from trust companies to manage their diverse asset portfolios.

What assets can be placed into trust? They may be practically any capital or assets:

• valuables
• real estate
• financial instruments, including digital assets like cryptocurrency.

Let’s focus on the last one. In their nature, cryptocurrencies are decentralized money that is not controlled by any central authority. Millions of people worldwide use them However, in early 2023, the U.S. Securities and Exchange Commission (SEC) announced that cryptocurrencies would be treated like securities. This means that the cryptocurrency market will have more rules and regulations, and only qualified custodians will be allowed to store cryptocurrencies. These changes will affect investment and asset management companies in the United States. As a result, more people may be interested in offshore trust funds and their services

Types of trust funds

Trust funds vary in the number of trust members, hence, different investment strategies are used:

1. Individual wealth and asset management. In this approach, a trust fund is specifically set up to meet the unique needs of a single person or family. The trustee exclusively handles the assets of this individual client. The option is the most expensive way to manage assets, usually requiring millions of dollars for you to qualify as a customer.

2. Collective asset management: This strategy is more common. With it, there is no need to create a separate trust fund. The capital owner approaches an existing trust company that also serves other clients. The trustee combines funds from various owners and creates a unified portfolio, allowing for more advantageous transactions. Clients then entrust assets of any value to collective management according to their preferences.

How to make sure the trustee is qualified?

1. To ensure the credibility of a trustee, check if they have the license necessary to offer financial services. Trusts are subject to specific regulations in each country. You can find a list of licensed funds on the official website of the national regulatory authority:

• In Australia, trusts must have an Australian financial services license issued by the Australian Securities and Investments Commission (ASIC).
• In the Turks and Caicos Islands, trust companies need to go through a licensing process with the Turks and Caicos Islands Financial Services Commission (TCIFSC).
• In Japan, trusts and trustees are overseen by the Financial Services Agency (FSA).

2. Those who represent trust funds are encouraged to obtain financial certifications to demonstrate their skills and knowledge. There are more than 100 different certification programs available for various areas of expertise. Below, some of the most common certifications are listed:

• Accredited Asset Management Specialist (AAMS): This certification, provided by the College for Financial Planning in the USA (Wisconsin), equips specialists to assist clients in achieving their long-term financial objectives, which may include funding education, tax planning, and retirement.
• Accredited Financial Counselor (AFC): Offered by the Association for Financial Counseling & Planning Education (AFCPE) in the USA (Ohio), the certification helps people effectively manage debts, plan budgets, and address financial challenges like bankruptcy, divorce, and alimony.
• Certified Blockchain and Digital Asset Specialist (CBDA): Available from the New York Institute of Finance (NYIF), the certification focuses on experts’ deep understanding of cryptocurrencies, NFTs, and decentralized finance.
• Certified Exit Planning Advisor (CEPA): This certification, offered by the Exit Planning Institute (EPI) in the USA (Ohio), prepares specialists to develop exit strategies for business owners, making it easier to sell businesses, transition to new management, or exit joint partnerships.

Delegating responsibilities to a trustee: what can they do?

When you place your assets in a trust fund, the primary objective is to protect and grow them by maximizing the returns. Here are some of the tasks that a trustee typically takes care of:

• drafting wills, powers of attorney, and agency agreements on behalf of the property owner
• managing social media profiles after the owner’s passing as per their wishes
• taking care of real estate, inter alia, finding tenants, making sure payments are on time, and maintaining the property
• securing custody via escrow services
• keeping assets safe for minor beneficiaries till they become adults
• giving recommendations on securities purchase
• building and managing investment portfolios
• developing long-term defined-benefit pension schemes
• assisting immigrants with adaptation, tax systems, and legal matters in their new country
• handling the client’s debts, exploring options for debt restructuring, or facilitating comfortable repayment
• engaging or hiring domain experts like consultants, lawyers, accountants, and brokers when needed and paying for their services.

The specific tasks assigned to a trustee may vary based on the type of assets and the client’s goals. A comprehensive list of services is always outlined in the trust agreement.

To successfully manage assets, the expertise of various specialists is necessary. If you find it difficult to understand the various options available, don’t worry. Reach out to Q Wealth consultants at info@offshore-pro. We are here to help you achieve your financial goals, whatever they are.