Career Overview: Asset Management

Posted by The Editors on December 3, 2012
"Because that is where the money is." Willy Sutton's immortal reply to the reporter who asked him why he robbed banks might also explain why people typically go into the asset management and retail brokerage industries. Companies such as State Street Global Advisers, Barclays Global Investors, JP Morgan, Vanguard, BlackRock, and Fidelity Investments all had in excess of $1 trillion in client assets under management at the end of March 2007. In the brokerage sector, Smith Barney, Fidelity, and Charles Schwab each had more than $1 trillion in client assets at the end of 2006. A host of other asset management and brokerage firms are nipping at their heels. But the asset management industry has not escaped the hit other financial services companies took at the end of 2008 and into 2009. Baltimore-based Legg Mason, for example, cut 8 percent of its corporate workforce near the end of 2008-and industry insiders predict more layoffs.

Asset management and retail brokerage firms are in the business of using money to make more of it. In the process, many people who work in the industry make a lot of it for themselves, too. Moreover, though they do it with hard work and intensity, many people in the industry successfully avoid the death march common in investment banking and management consulting. Asset management companies manage the money of their clients to achieve specific financial objectives within guidelines under which the investment pool is organized. The pool might take the form of a mutual fund, hedge fund, retirement or pension fund, or other institutional fund and, depending on how the fund is organized, could invest in any range of investment vehicles including equities, fixed-income securities, and derivative products such as options and futures.

Until the economic crisis hit in 2008, the markets had been rising fairly steadily. In the summer of 2007, the Dow Jones Industrial Average hit record levels, and crossed 14,000 for the first time in its history. As the market rose, more money was poured into asset management and brokerage accounts. But the industry took a turn for the worse in 2008. After an average growth of 12 percent from 2002 to 2007, a study by Boston Consulting Group released in July 2009 found that global assets under management fell 18 percent in 2008.

Besides the suffering economy, a huge scandal in 2008 rocked investors' confidence in asset management and their advisors' capabilities. In December, financial advisor Bernard Madoff admitted the asset management arm of his firm was an elaborate Ponzi scheme, and what is believe to be one of the biggest in history. Estimated client losses total $65 billion and nearly 9,000 former clients filed claims for losses because of his deceit. Madoff is now serving the maximum 150 years in prison.

What You'll Do:
As a retail stockbroker or financial adviser, you perform much the same function as asset managers: picking stocks, bonds, and other investments, determining the right portfolio mix, executing trades, and ultimately increasing or preserving wealth-albeit on a smaller scale and with fewer investment tools at your disposal-for individual investors.

The asset management juggernaut requires an equally enormous infrastructure. For each fund, there is not only a fund manager, but also a team of analysts to research equities and fixed-income investments; economists and other soothsayers to augur the direction of the market and economy; salespeople and marketers to persuade people to buy the fund; traders to execute orders; accountants to track assets; and legions of tech specialists and back-office staff. There's a similar infrastructure for retail brokerages.

The asset management and brokerage sectors are home to tons of jobs, and employment in the securities industry trended upward between October 2003 and mid-2008. According to information published in Investment Company Institute's 2009 Investment Company Fact Book, more than 168,000 people worked in the mutual funds sector at the end of 2007. The 2009 version of the ICI Fact Book reported that fund sponsors then added more than 21,000 workers to their payrolls between 2005 and 2007, reaching a record 168,000 employees. If you manage to find (and keep) a job in the industry, you can expect to make a solid living and retain something of a life, particularly compared with the slave-labor existence of your investment banking peers.
Undergraduates with their hearts set on a career in asset management should take as many statistics and accounting classes as possible to prove that they can handle all of the number crunching and financial modeling that the profession requires. Undergraduates may be able to land jobs as research analysts, though competition is tough and they may be going up against candidates with MBAs. If you're really serious about the profession, start with a job in sales, marketing, operations, or trading at an asset management firm, then consider going back for an MBA or taking your CFA (Chartered Financial Analyst credentialing) before switching into asset management per se. You may also consider a two-year analyst or research position in investment banking. Such jobs are more plentiful and provide excellent training for asset management. MBAs usually come aboard as researchers or analysts. Analysts and researchers generally serve at least two years before they come up for consideration as fund managers. It's important to note, however, that not all asset management firms see the MBA as a key to success. If you're looking to be a manager or run a marketing program, the MBA will be helpful; but if you're looking at portfolio management, a CFA is a better choice.

You are more likely to get an asset manager position earlier if you run smaller portfolios for institutional asset managers or private banks that offer services to the wealthy. On the mutual fund side, you might become portfolio co-manager, sharing the management responsibility with a senior manager. There is no single prerequisite to becoming an asset manager or broker. It all comes down to how much money you can make with other people's money. That said, virtually all successful asset managers and brokers possess the following skills:

Quantitative and Analytical Skills

Asset managers have to be able to read spreadsheets and earnings reports. And they have to be able to take those numbers and crunch them into financial models and projections. Even if you're dealing with less volatile investments such as bonds or real estate, you have to do the math to stay ahead of conventional wisdom. Classes in accounting and statistics are a big help, as are jobs that require number crunching, from I-banking to management consulting.

Managerial and Organizational Skills

Whether you're a researcher or a fund manager, you'll have to keep track of reams of facts from which to glean the really important information. Furthermore, you'll have to be able to make decisions-and execute them-quickly and accurately. Delay can cost big money. Finally, you need to be able to motivate and manage a talented staff of researchers and analysts if you work your way up to portfolio manager. Without their coordinated efforts, you may not have the information you need to make the best decision possible.
Job Outlook
With the tremendous proliferation of 401(k), IRA, and other types of retirement plans during the 1990s, more people than ever can now be classified as investors. An estimated 92 million individuals in 52.5 million households, or 45 percent of all U.S. households, owned mutual funds in 2008, says the Investment Company Institute (ICI). The choices for the small-time investor have never been greater, including stocks, bonds, mutual funds, real estate trusts, exchange-traded funds (ETFs), and options. There's also a range of venues available should one have an itch to invest, including traditional full-service firms, discount brokerages, and do-it-yourself online trading. And we haven't even considered the institutional investor yet. The pensions, insurance companies, corporations, foundations, and endowments that used to comprise nearly all investors are still around, and money managers are still there to try to create wealth for them.

This all boils down to a wide range of career options in a dynamic industry. What's in demand is closely tied to a firm's strategy. Discount brokers, the ones that benefited the most from "average Joes" working as day traders, have kept a tight cap on headcount now that Joe has gone back to his day job. The largest, generally New York-based, brokerage houses (sometimes called wirehouses) continue to recruit trainees for number-crunching analyst positions and more sales-oriented marketing and brokerage support jobs. And the merger frenzy that took hold of the financial services sector in the late 1990s and early part of this decade has endowed some regional players with bigger aspirations. For example, in 2008 Wells Fargo acquired Wachovia Securities, which had acquired Golden West Financial in 2006 (a move that added 255 branches to its network), as well as A.G. Edwards and its more than 6,500 advisers in 2007.

But if you decide to go into managing other assets, expect some scrutiny in the coming years.  Clients are now wary of trusting their advisors and asset managers, in a fall-out coined "the Madoff effect." Even if you're straightforward, accomplished, and honest with your clients, expect to answer pressing questions and do your due diligence to earn their trust.
Career Tracks
Portfolio Management and Research Roles

Fund Accountant

Education: BA/BS in finance or accounting
As a fund accountant, you have a singular objective: To calculate the net asset value, the price that customers pay, for a mutual fund. You do this by tracking the fund's holding and closing prices for the securities owned as well as income earned and customer withdrawals. The job consists of checking ledger entries, running valuation reports, and recording account transactions. An accounting or finance degree is a typical requirement. In some firms, the position is seen as a way of learning about the fund industry and portfolio management.

Junior Research Analyst

Education: BA/BS
Typically an entry-level position at a firm such as Goldman or Merrill, this prized role does the bidding of the equity analyst. The role includes reading 10-Ks to find new company information, updating and maintaining financial models, synthesizing and analyzing external company and industry data, proofreading PowerPoint presentations and research reports, conducting primary research by calling industry contacts, and writing minor research reports and analyst notes. The role is essentially the assistant to an analyst or group of analysts. However, it brings you incredible exposure within the company and sets you up in an analyst track. Most junior analysts get MBAs and continue in the industry as associates, then senior analysts, and eventually managing directors. Junior analyst roles are entry-level or require one to two years of experience. Many firms look for people with accounting or finance degrees. However, top firms such as Credit Suisse will take college graduates from a wide range of majors, as long as they have excellent quantitative and communications skills.

Education: BA/BS, MS/MA, PhD
Are you a budding Alan Greenspan who wants a piece of the action now? Economists sit in both buy-side and sell-side companies. As an economist, you typically provide an opinion on the future of the market and general economy based on models that you develop and maintain, third-party models and analysis, and analysis of global and domestic news and economic indicators. You communicate your position on the economy and the market through written analysis briefs and meetings with internal clients-analysts and portfolio managers.

Quantitative Analyst
Education: MS, PhD
Black hole physics got you down? Tired of trying to make cocktail party conversation with your game theory dissertation and bringing home dates to your shared apartment with milk-crate bookshelves? If there was ever a way for physics and math PhDs to become as rich as Croesus, it's as a quantitative analyst. Quantitative analysts typically develop computer models to value securities and structure portfolios that are used in portfolio management and program trading. The position usually requires programming skills such as C or Java in addition to superior analytical skills and good communication skills-you have to meet with clients as well. Prospective candidates usually don't have to have previous finance experience for this position-firms will train you in portfolio theory, valuation, and securities regulation. They'll assume you'll be a quick study; though you aren't necessarily an Einstein, you are likely a rocket scientist.

Buy-Side Research Analyst
Education: BA/BS, MBA
Credential: CFA (Chartered Financial Analyst) Fixed-income analysts typically work in small teams of up to a dozen analysts, and perform credit analyses of individual securities and analyses of the overall market. Analysts usually support a portfolio manager but report to a director within the research department. The analyst's product is a recommendation to a fund manager to buy, sell, or hold a security. Additionally, analysts come up with investing ideas for portfolio managers based on their research. Analysts spend most of their time analyzing the cash flows of the companies underlying the securities they are evaluating; researching economic and social trends to understand the direction of interest rates; talking to analysts at credit rating agencies such as Moody's (for fixed-income securities) or to sell-side analysts at brokerage firms to better understand the securities and the market; and presenting their recommendations and findings to fund managers. The role typically requires an MBA in finance, work toward a CFA, and significant quantitative abilities.
Salary range: $150,000 to $1 million (for the big Wall Street firms)

Sell-Side Research Analyst
Education: BA/BS, MBA
Credential: CFA
Research analysts are a little like real-life doctors who play doctors on television; they have all the skills, training, and experience required of their profession and, on top of that, they have a public presence and communication skills that would put Dale Carnegie to shame. Brokerage firms put their analysts in the spotlight, helping them get spots on CNBC or MoneyTalk; their reputation adds luster and brand recognition to the firm. Not all analysts are this high profile, but all must do their share of media snippets and conferences; the equity research position is not a role for the shy or the tongue-tied.

Research analysts evaluate equities in a given industry, as well as the industry itself. With the financial models they develop, and through data they collect from 10-Ks, analyst calls, meetings with industry executives, and general industry knowledge, research analysts recommend (or pan) stocks and give opinions about where they think the industry is headed; they do this for both internal and external clients. It's important to note that research teams are generally cost centers in brokerages. They don't generate revenue on their own, but rather support investment bankers and traders by giving them briefings on equities; in the past, they also touted stocks of investment banking clients to goose I-banking sales.
Salary range: $150,000 to $1 million-plus

Portfolio Manager
Education: BA/BS, often MBA
Credentials: CFA
The previous rung on the career ladder for most portfolio managers is investment or research analyst, or possibly junior portfolio manager. After passing on your stock picking analysis to the bloke running the fund, you have the chance to make your own calls. As a portfolio manager, you're at the pinnacle of the asset management world. At some level, the job is pretty straightforward: Your company, be it a mutual, pension, or other type of fund, has specific investment goals; your job is to pick a portfolio of stocks, bonds, or combination of the two, to make the highest returns for investors given those goals. The job is analytical, strategic, and on some level, sales-oriented. All of the following might be part of a day: You order traders to execute the purchase or sale of securities. You meet with the CEO of a company you're thinking of investing in to grill him about the business. You huddle with your assistant manager or analysts to go over stock picks, optimization of short-term instruments like money market securities, and your fund's alpha rating. You then work with them to tweak the financial model that's the basis of your day-to-day fund management. You spend some time getting briefed on industry developments and corporate intelligence. Add to that client relations work. If you are managing a pension or other asset fund, you might make a sales call to brief a charitable foundation on your investing strategy or meet with the investment manager of a current client to review your fund's performance.

Broker/Adviser Roles

Stockbroker Assistant

Credentials: Series 7, 63
A stockbroker assistant performs many of the administrative tasks for a stockbroker, such as calling clients to confirm trades, attending to client requests, and handling reporting. After you've secured your Series 7 license, you become actively engaged in explaining products to clients, opening new accounts, and eventually executing trades. In a good firm, the broker assistant position an excellent path to becoming licensed and learning the business.
Salary range: $30,000 to $50,000

Financial Adviser
Education: BA/BS; MBA, JD, or MD preferred
Credentials: Series 7, 63
Your job is to acquire new clients, then sell them a variety of products-from stock recommendations and mutual funds, to annuity-based life insurance. In the world of wealth management, you're working for people who are hardworking and smart enough to stock up hundreds of thousands or even millions of dollars, and they're essentially entrusting you with their life savings.

Accordingly, many brokerage firms aren't looking for inexperienced kids to fill the ranks of the financial advisory and stock brokerage practices. Typically, firms recruit people with significant life experience and professional accomplishments. Merrill Lynch, for instance, looks for people with at least five years of professional experience and preferably with a professional degree such as an MD or JD. Other firms, such as Edward Jones, hire undergraduates. Most brokerages give their financial advisers significant training. In addition to Series 7 (the license required to sell securities) training, firms give up to five years of ongoing training in stock market basics, investment planning, asset allocation, and sales.

Compensation structures vary greatly among firms in the industry, but incentive-based pay is typical. Charles Schwab pays based on revenue produced by the broker's client assets under management, and making more than $150,000 a year is not unrealistic. Edward Jones pays entirely on commission after a year of training and ramp-up. Most firms will pay a base salary until you build up a clientele, after which your salary is often entirely commission-based. Stock brokering is not for the faint of heart.

In addition to offering income that's based solely on your performance and spiced by overall economic conditions, it's grueling until you build up your client base. Piper Jaffray expects that for the first three to five years, 50- to 60-hour workweeks are the norm. And you have to be ready for rejection. Sales is a numbers game. As in any other sales job, you have to do a lot of cold-calling and play the numbers game when you're starting out. And you have to have pretty thick skin. An insider says, "It can get pretty discouraging. I make a plan for myself: I make perhaps 15 or 20 calls. I get called all sorts of names by some people; it can get brutal. I then walk away and do something else for a half hour and start up again."

Institutional Relationship Manager
Education: BA/BS, MBA
Credential: Series 7, 63
Relationship managers ensure that institutional clients of mutual funds or other institutional products are happy; they resolve issues, educate clients on products, and implement new processes. Relationship managers also advise and sell clients new products. Typically, relationship managers deal with large institutions and do so at a senior executive level. Usually, this is a mid-career position.
Salary range: $100,000 to $175,000

Institutional Sales Manager
Education: BA/BS, MBA
Credential: Series 7, 63
Sales managers call on pension funds, union plans, banks, and other institutional clients and sell them funds, back-office products, or other products. They usually operate on a territory model, prospecting for new clients and selling add-on products to existing customers in a specified geography. The job involves some travel, sometimes amounting up to 50 percent of your work time, which is high for the financial services industry. It also involves some cold-calling and a lot of networking, particularly with the fund consultants who act as middlemen between the pension plans and companies that manage funds. Some firms expect sales reps to generate up to 20 warm leads (in-person presentations) a month. Often, sales managers have telesales staffs to help prospect for new clients. Once at a client presentation, you'll pitch your fund with a product team. This position is also a mid-career hire. Those with aspirations in this potentially lucrative
business often start as traders or analysts, since knowing the industry backward and forward is key.
Salary range: $150,000 to $500,000

Private Banker

Education: MBA
Credentials: Series 7, 63
Private bankers are like financial advisers on steroids. They offer financial services and advice to wealthy individuals and earn wads of cash for their efforts. Their profiles can range from a bank-branch employee schooled in products that might interest people with assets of more than $250,000 in investing, to brokerage wealth managers catering to families with more than $500 million in assets. These bankers are often highly specialized and carry multiple degrees.

Private banking units usually charge their clients a fee for their services based on a percentage of assets under management. So the more assets a client brings to the institution, the sweeter the payout to the banker, who receives a percentage of these fees over time for his or her hard work.  As with any financial advisory, private bankers have to build their own clientele, and a wealthy one at that. Private client-services brokers often find themselves living the jet-set life of their clients. One insider reports having to take his client to the Masters tournament in Augusta and later meeting another client, a casino entrepreneur, in Las Vegas.  And like mere financial advisers, private bankers typically have at least five years of professional experience as well as professional degrees such as MDs and JDs. A law degree is particularly attractive as you go further up the wealth ladder, since understanding legalese comes in handy when helping clients in areas like estate planning. Aside from hiring well-connected people, private banks recruit relatively heavily from MBA programs. Although you still need to be connected, MBA recruiting affords an entrée into private client services that you might not otherwise have had.

Support Roles

Customer Service

Education: BA/BS
If you're determined to get into the asset management or brokerage industries and all else fails, you could look for a position in a customer service department. Here, you help customers understand their transactions, read their statements, and sort through product information. The role gives you a base knowledge of the industry and the company. Customer service agents typically need Series 7 and 63 licenses, which firms will often sponsor.

Compliance Officer
Education: BA/BS
Compliance groups police securities and investment firms to prevent company employees from violating SEC regulations. Roles in compliance usually start at the analyst level and move up to vice president. Compliance officers set up "Chinese walls," or barriers between different groups in the company. They also prevent the spread of insider trading; monitor communications to prevent insider information from spreading outside the firm or between groups; track employees, trades to ensure that they aren't buying or selling "gray list" securities; work with different company groups to establish gray lists or lists of clients that the firm is working with and on which the firm may have insider information; and develop the policies and procedures of the group along with company attorneys and external regulators.

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