What is an 'Asset Management Company - AMC'
An asset management company (AMC) is a company that invests its clients' pooled funds into securities that match declared financial objectives. Asset management companies provide investors with more diversification and investing options than they would have by themselves. AMCs manage mutual funds, hedge funds and pension plans, and these companies earn income by charging service fees or commissions to their clients.
BREAKING DOWN 'Asset Management Company - AMC'AMCs offer their clients diversification because they have a larger pool of resources than the individual investor could access on his own. Pooling assets together and paying out proportional returns allow investors to avoid minimum investment requirements often required when purchasing securities on their own, as well as the ability to invest in a larger set of securities with a smaller investment.
Understanding AMC Fees
In some cases, AMCs charge their investors set fees. In other cases, these companies charge a percentage of the total asset under management. For example, if an AMC is taking care of an investment worth $4 million, and the AMC charges a 2% commission fee, it owns $80,000 of that investment. If the value of the investment increases to $5 million, the AMC owns $100,000, and if the value falls, so too does the AMC's stake. Some AMCs combine flat service fees and percentage-based fees.
How Do AMCs Work?
Typically, AMCs are considered buy-side firms. This simply refers to the fact that they help their clients invest money or buy securities. They decide what to buy based on in-house research and data analytics, but they also take public recommendations from sell-side firms.
What Are Sell-Side Firms?
Sell-side firms such as investment banks and stockbrokers, in contrast, sell investment services to AMCs and other investors. They do a lot of market analysis, looking at trends and creating projections. Their objective is to generate trade orders, and they charge transaction fees on the orders.
What Is the Difference Between Fiduciary AMCs and Brokerage Houses?
Brokerage houses and fiduciary firms are both examples of AMCs. Brokerage houses accept nearly any client, regardless of the amount they have to invest, and these companies have a legal standard to provide suitable services. This essentially means as long as they make their best effort to manage the fund wisely, they are not responsible if their clients lose money. Fiduciary firms like brokerages invest their clients' funds in a range of assets, but they are held to a higher legal standard. Essentially, fiduciaries must act in the best interest of their clients. They also tend to have higher minimum investment thresholds, and they charge services fees rather than commissions. In general, the richest families in the United States tend to use fiduciaries.