Asset Management Company—AMC Definition

An asset management company (AMC) is a firm that invests pooled funds from clients, putting the capital to work different investments including stocks, bonds, real estate, master limited partnerships, and more. Along with high-net-worth individual portfolios, AMCs manage hedge funds and pension plans, and—to better serve smaller investors—create pooled structures such as mutual funds, index funds, or exchange-traded funds, which they can manage in a single centralized portfolio.

Asset management companies are colloquially referred to as money managers or money management firms. Those that offer public mutual funds or exchange-traded funds (think Vanguard Group, Fidelity Investments or T. Rowe Price) are also known as investment companies or mutual fund companies.

Because they have a larger pool of resources than the individual investor could access on his own, asset management companies provide investors with more diversification and investing options. Buying for so many clients allows AMCs to practice economies of scale, often getting a price discount on their purchases. Pooling assets and paying out proportional returns also allow investors to avoid the minimum investment requirements often required when purchasing securities on their own, as well as the ability to invest in a larger amount of securities with a smaller amount of funds.

In some cases, AMCs charge their investors set fees. In other cases, these companies charge a fee that's calculated as a percentage of the client's total assets under management (AUM). For example, if an AMC is overseeing a portfolio worth $4 million, and the AMC charges a 2% 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.

Typically, AMCs are considered buy-side firms: They help their clients buy investments. They decide what to buy based on in-house research and data analytics, but they also take public recommendations from sell-side firms.

Sell-side firms such as investment banks 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.

Brokerage houses and asset management companies overlap in many ways. Along with trading securities and doing analysis, many brokers advise and manage client portfolios, often through a special "private investment" or "wealth management" division or subsidiary; many also offer proprietary mutual funds. Or their brokers simply act as advisors to clients, discussing financial goals, recommending products, etc.

In general, though, 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 that as long as they make their best effort to manage the fund 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 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 to do so, they face criminal liability. They're held to this higher standard in large part because money managers usually have discretionary trading powers over accounts—that is, they can buy, sell, and make investment decisions on their own authority, without consulting the client first. In contrast, brokers must ask permission before executing trades.

Asset management companies usually execute their trades through a designated broker; that brokerage also acts as the designated custodian that actually holds investors' accounts. AMCs also tend to have higher minimum investment thresholds than brokerages do, and they charge fees rather than commissions.

As mentioned earlier, purveyors of popular mutual fund families are technically asset management companies. And many high-profile banks and brokerages have asset management divisions, usually for high net worth individuals or institutions.

But there are also many private asset management companies, who are not household names but who are quite established in the investment field. One such is RMB Capital, an independent investment and advisory firm with approximately $8.8 billion in assets under management. Headquarted in Chicago, with 10 other offices around the U.S., and 190 employees, it has three divisions: RMB Wealth Management for wealthy retail investors, RMB Asset Management for institutional investors, and RMB Retirement Solutions, which handles retirement plans for employers. Charles Schwab acts as custodian for RMB accounts. A subsidiary, RMB Funds, manages six mutual funds.