# Understanding Asset Management Companies (AMCs): Definition and Key Insights

## What Is an Asset Management Company (AMC)?

Asset management companies (AMCs) are firms that channel pooled client funds into diverse investments like stocks, bonds, and real estate. They manage portfolios for [high-net-worth individuals](https://www.investopedia.com/terms/h/hnwi.asp), hedge funds, and pension plans, and create mutual or index funds for smaller investors, centralizing management to maximize diversification and returns.

AMCs are colloquially referred to as money managers or money management firms. Those that offer public [mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp) or ETFs are also known as investment companies or mutual fund companies. Such businesses include Vanguard Group, Fidelity Investments, T. Rowe Price, and many others.

AMCs are generally distinguished by their [assets under management](https://www.investopedia.com/terms/a/aum.asp) (AUM)—the amount of assets that they manage.

### Key Takeaways

*   Asset management companies (AMCs) invest client funds into various securities and assets like stocks, bonds, and real estate.
*   AMCs offer diversification and economies of scale, making it easier for clients to invest in a broad array of assets.
*   Fees charged by AMCs are usually a percentage of assets under management (AUM), aligning their interests with clients.
*   AMCs are typically fiduciaries, holding them to a higher legal standard than brokerage firms.
*   Brokerage houses differ from AMCs in that they may work with any client and are not held to the same fiduciary standards.

![Asset Management Company (AMC)](https://www.investopedia.com/thmb/F5uArUq0W-BgIDtiv2AhUmd34Xw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/asset_management_company.asp-final-9c7d4566332a4732930dff0b4ee8efef.png)

*— Investopedia / Julie Bang*

## How Asset Management Companies (AMCs) Operate

Because they have a larger pool of resources than the individual investor could access on their own, AMCs provide investors with more [diversification](https://www.investopedia.com/terms/d/diversification.asp) and investing options. Buying for so many clients allows AMCs to practice [economies of scale](https://www.investopedia.com/terms/e/economiesofscale.asp), often getting a price discount on their purchases.

Pooling assets and paying out proportional returns also allows investors to avoid the [minimum investment](https://www.investopedia.com/terms/m/minimum_investment.asp) requirements often required when purchasing securities on their own, as well as the ability to invest in a larger assortment of securities with a smaller amount of investment funds.

### Cost Structures of Asset Management Companies

In most cases, AMCs charge a fee that is calculated as a percentage of the client's total AUM. This asset management fee is a defined annual percentage that is calculated and paid monthly. For example, if an AMC charges a 1% annual fee, it would charge $100,000 in annual fees to manage a portfolio worth $10 million. However, since portfolio values fluctuate on a daily and monthly basis, the management fee calculated and paid every month will fluctuate monthly as well.

Continuing with the above example, if the $10 million portfolio increases to $12 million in the next year, the AMC will stand to make an additional $20,000 in management fees. Conversely, if the $10 million portfolio declines to $8 million due to a market correction, the AMC's fee would be reduced by $20,000. Thus, charging fees as a percentage of AUM serves to align the AMC's interests with that of the client; if the AMC's clients prosper, so does the AMC, but if the clients' portfolios make losses, the AMC's revenues will decline as well.

Most AMCs charge a minimum yearly fee of $5,000 or $10,000, focusing on clients with portfolios of at least $500,000 or $1 million. In addition, some specialized AMCs such as [hedge funds](https://www.investopedia.com/terms/h/hedgefund.asp) may charge performance fees for generating returns above a set level or that beat a benchmark. The "[two and twenty](https://www.investopedia.com/terms/t/two_and_twenty.asp)" fee model is standard in the hedge fund industry.

### The Role of AMCs on the Buy Side

AMCs are usually [buy-side](https://www.investopedia.com/terms/b/buyside.asp) firms, meaning they help clients decide on investments using their own research and data, as well as advice from sell-side firms.

Sell-side firms such as [investment banks](https://www.investopedia.com/terms/i/investmentbank.asp) and stockbrokers, in contrast, sell investment services to AMCs and other investors. They perform a great deal of market analysis, looking at trends and creating projections. Their objective is to generate trade orders on which they can charge transaction fees or [commissions](https://www.investopedia.com/terms/c/commission.asp).

## Comparing AMCs to Brokerage Houses

[Brokerage](https://www.investopedia.com/terms/b/brokerage-company.asp) houses and AMCs often overlap. Besides trading and analysis, many brokers manage portfolios through a "private investment" or "wealth management" division. Many also offer proprietary mutual funds. Their brokers may also act as advisors to clients, discussing financial goals, recommending products, and assisting clients in other ways.

Generally, brokerage houses accept almost any client, regardless of investment amount, and must provide "suitable" services. Suitable essentially means that as long as they make their best effort to manage the funds wisely, and in line with their clients' stated goals, they are not responsible if their clients lose money.

In contrast, most asset management firms are [fiduciary](https://www.investopedia.com/terms/f/fiduciary.asp) firms, held to a higher legal standard. Essentially, fiduciaries must act in the best interest of their clients, avoiding conflicts of interest at all times. If they fail, they may face criminal charges. This higher standard is due to money managers' discretionary trading powers. That is, they can buy, sell, and make investment decisions on their authority, without consulting the client first. In contrast, brokers must ask permission before executing trades.

AMCs often trade through a designated broker, which also acts as the [custodian](https://www.investopedia.com/terms/c/custodian.asp) holding the investor's account. AMCs also tend to have higher minimum investment thresholds than brokerages do, and they charge fees rather than commissions.

Pros

*   Professional, legally liable management
    
*   Portfolio diversification
    
*   Greater investment options
    
*   Economies of scale
    

Cons

*   Sizeable management fees
    
*   High account minimums
    
*   Risk of underperforming the market
    

## Real-World Example of a Leading AMC

As mentioned earlier, purveyors of popular mutual fund families are technically AMCs. Also, many high-profile banks and brokerages have asset management divisions, usually for HNWI or institutions.

There are also private AMCs that are not household names but are quite established in the investment field. One such example is RMB Capital, an independent investment and advisory firm with approximately $10 billion in AUM. Headquartered in Chicago, with 10 other offices around the U.S., and roughly 142 employees, RMB has different divisions, including:

1.  RMB Wealth Management for wealthy retail investors
2.  RMB Asset Management for institutional investors
3.  RMB Retirement Solutions, which handles retirement plans for employers

The firm also has a subsidiary, [RMB Funds](https://rmbfunds.com/), that manages six mutual funds.

## The Bottom Line

Asset management companies (AMCs) serve as vital intermediaries for investors by pooling funds to invest in diversified assets like stocks, bonds, and real estate. They offer opportunities for both high-net-worth individuals and smaller investors through various fund structures such as mutual funds and ETFs. AMCs generate fees as a percentage of assets under management, aligning their success with client outcomes.

They generally offer more investment options and portfolio diversification. However, they come with significant management fees and higher account minimums. Investors should carefully consider these factors and ensure that the AMC aligns with their financial goals.

> **Article Sources**
>
> 1.  RMB Capital. "[About Us](https://rmbcapital.com/about-us)." Accessed Aug. 16, 2021.
>     
> 2.  RMB Capital. "[People](https://rmbcapital.com/people)." Accessed Aug. 16, 2021.