Asset management, whether internally controlled or left in the hands of an outside advisor, carries with it certain risks. Although the idea is to increase company revenues through more efficient money handling and expansion of the company's portfolio, inadequate communication and lack of specific technical know-how can make an otherwise carefully planned procedure to backfire.
When seeking advisory management for your company's investments, remember that not all outside parties operate using the same strategies. Here is a list of common problems that can occur when an asset management team is hired to manage your company's money.
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Lack of Understanding
The purpose of asset management is to have a specialist look deeply into a company's operations and solve money leakage problems. The advisor is brought on board to fix these problems. However, the advisor may not understand why certain monthly expenses are important in order to keep the company afloat. Long-term expenses cannot be overlooked nor can the possibility that certain physical materials might experience a jump in price in the near future. Asset managers must be able to consider all of these possibilities.
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Poor Communication
Nothing is worse than hiring a stock broker or financial advisor only to hear from him or her once or twice a month. The same is true for an asset management team. If several different individuals are working on a problem such as future spending patterns, all it takes is a lack of input from a team member to distort the final figures.
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Too Much Management
The primary goal of an asset management team is to find ways to use available capital in sound investment opportunities. However, a few fluctuations in the stock market and some question marks on the company's balance sheet is not reason enough to avoid risk altogether. If you are a company owner and have dealt with the stock market before, you already know that some aggressiveness is required in order to achieve goals.
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Fees And Incentives
Some third-party asset management advisors charge a flat-fee based on the amount of money they will be handling for investment purposes. It is vitally important for you, the business owner, to make sure that there are no hidden incentive fees that must be paid to the advisor should your return on investment fall below the desired result.
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Non-Mutual Endgames
Some asset management advisors are not the type to stick with a tried-and-true method of investing. They may suggest a change in strategy that you do not understand. If the advisor asks you to invest elsewhere because of high confidence backed up with little historical data, your company could suffer tremendously.
You must ask yourself whether the advisor is truly interested in achieving results that work in your company's favor. This is why a self-examination of your company and your goals for the short- and long-term need to be spelled out clearly before consulting with any outside asset management firm.
