After accumulating a certain amount of wealth, you will have to think about where and how to invest it. There is an abundance of options out there. However, if you decide to work together with a professional partner and not do it all by yourself, you have two main choices. Going directly to a bank and getting advice from their relationship managers or selecting an external asset manager (EAM). Depending on your needs there are advantages and disadvantages to both options. But today I would like to focus on the advantages of an external asset manager.
An EAM is a wealth manager who works independently from banks. They help you open accounts at third-party banks and then receive a power of attorney over the accounts in order to facilitate the asset management. The fee for their service is a percentage of the assets that they manage. So, what are the advantages of this solution?
Private bankers traditionally provided tailor-made services to their clients. However, due to the worldwide rapid growth of wealthy individuals, mainstream private banking services have become more streamlined making tailor-made personal services rare, except for the wealthiest clients. A private banker working for one of the larger Swiss private banks may be expected to manage as many as 1,000 client relationships. In contrast, smaller external asset managers usually do not manage more than 100 clients. With an EAM you usually also have direct access to the owners and managers of the company. This is not possible in a large bank with many branches in several countries. You will also have more continuity. Most private banks have considerable staff fluctuations whereas with an EAM the owners usually are in business until retirement and sometimes even after that.
A good EAM is 100% independent and does not take any money from any third party except for the management fee from the client. There is no hidden agenda and no selling of any products. EAMs usually do not sell or provide any in-house products. At banks employees have strict sales targets, that jeopardize their independence and influences them in the advice that they are giving you. Banks have countless in-house funds and products that they have an interest in selling to you. An EAM has no incentive in advising you to do or buy anything that does not seem to be beneficial to you. You can rely on EAMs for absolute independence when it comes to their advice and management of the portfolio.
Working with an EAM you are flexible when it comes to choosing a custodian bank. The EAM usually works together with several different banks and you can choose which one suits you best. You can also open up two accounts at two different banks but still have the same contact person for both. Also, if at any point for whateve reason you are not happy with the bank anymore, your EAM can help you switch banks and again your contact person stays the same. Also, you can have different jurisdictions between the EAM and the bank. You can have an EAM in Switzerland and a bank account in the US or an account in the European Union or any other combination that you can think of.
EAMs often have lower minimum investment sizes than if you were to go to the bank directly. Private banks do not onboard clients below USD 1m but if you talk to different EAMs you will find companies that will start working with you with minimums of USD 500k or even USD 250k. Additionally, EAMs tend to receive a more favorable pricing at the bank because they have significant assets there compared to if you, as a single client, would be talking to the bank directly.
Last, but certainly not least, if you come from the US many banks will not accept you as a client if you contact them directly. However, if you work through an EAM that is registered with the Securities and Exchange Commission (SEC) in the US, they can work with you. Since the EAM guarantees towards the bank that they know the rules and regulations that go along with working with a US person.