What is trust management and what is its benefit

2024 Author: Malcolm Clapton | [email protected]. Last modified: 2023-12-17 03:44

Professionals will choose the right strategy for you and invest in promising assets.

What is trust management

This is when an investor transfers his assets to professionals who extract profit from capital or property. Assets can be practically any: securities, real estate, enterprises and even copyrights.

In its form, trust management is an agreement that is concluded for some time, while the ownership rights remain with the owner. Managers take only a small part of the profits for their services. True, the performers do not guarantee it - with investments this is impossible.

The point is that specialists better understand when to keep an asset, and when to sell and buy another - so as not to take much risk and earn. Therefore, ordinary ETFs can be considered a trust management service - this is even stated in the law.

However, trust management is also used for other purposes:

• Hereditary transition. Specialists dispose of the assets of the deceased investor while the heirs deal with formalities, accept cases and enter into inheritance rights.
• Joint ownership. Several investors with shares, for example, in a company or a residential complex, transfer assets to one place: this makes it easier to keep track of everything and collect profits.
• Waste protection. Managers keep an investor's capital until their heirs grow up, get an education, or have their own children.

Who manages the assets of investors

Management companies. These are usually banks, brokers and specialty firms, less often investment platforms, microfinance organizations and credit cooperatives.

Each such company is part of a self-regulatory organization - a non-profit association of firms that work in the same area. These groups monitor their members to see how they comply with the rules and professional standards, if they are not taking too much risk.

It is not enough just to be a financial company, the law requires permission to manage all assets except securities. The license is issued by the Central Bank, it also requires you to enter self-regulatory organizations.

What is trust management

Companies specialize in different services. Some are ready to deal with all assets - money, real estate, business interests and securities. These firms usually work with one or more wealthy clients, which is why they are called family office - "family office".

More often, however, services are offered in one of three broad categories.

Trust property management

They come to such firms when the investor owns some kind of asset that requires constant attention, but there is not enough time or energy for this.

For example, this happens when renting real estate. Real estate agencies monitor the premises, pay utility bills, look for tenants, conduct all negotiations and collect fees. The owner simply makes a profit, minus taxes and commission to the manager.

Another example is business. The owner appoints a trustee who manages the entire enterprise or some part of the processes. And the owner, for example, is engaged in a long-term strategy.

Trust money management

Sometimes investors have a lot of funds that either lie dead weight, or hang out on several deposits. Then the capital is transferred to a management company, which can increase it: buy shares of investment funds, invest in other firms, purchase precious metals, collection wines and anything else.

Where exactly the managers invest their money depends on the agreements with the client, usually the conditions are individual.

Trust management of securities

The most common category is that a person is helped to invest in the stock, derivatives or over-the-counter market. It is very similar to money management, but the investor either transfers his securities or converts the funds into assets in the markets immediately.

Russians keep more than 9 trillion rubles in this segment: a third in investment funds, about half in pension funds. Also, the category is growing the fastest: 13-15% per year.

When to transfer assets into trust

We will explore the most popular option - professional investment assistance. In Russia, in 2020, almost half a million people chose such a strategy for themselves, the Central Bank calculated.

When there is not enough knowledge or it is scary to invest yourself

Not all people are ready to understand financial indicators, study companies, estimate profitability and deduct taxes and commissions from it. It can also be scary to read business news. For example, a container ship was stuck in the Suez Canal for a week, well, okay. But the global economy was costing $ 6 billion a day for this traffic jam.

When there is some free money

A diversified portfolio that does not depend on fluctuations in one market or sector of the economy will be expensive: shares and bonds on stock exchanges are sold in lots of 10-100-1000 pieces. If an investor does not have millions to spare, then he usually buys a piece of ETF. As a rule, shares cost several thousand rubles, but this is an investment in a well-thought-out and diverse set of assets.

When there is too much free money

If an investor has accumulated tens and hundreds of millions of rubles, then it is not enough for him to just buy shares. We need special trading strategies and hedging tools to protect against price fluctuations. To do this, you need to understand complex financial mechanisms, which not everyone is ready for.

When you don't want to waste a lot of time

In fact, investment is the second job, which takes time, effort and sometimes money. An investor may be well versed in all financial instruments, but prefer a vacation with his family or a walk with friends. Management can be delegated to those for whom this is the main occupation.

When you want to get access to a variety of financial instruments

Professionals have the status of qualified investors, so they can invest money in other countries and in complex financial instruments. Ordinary people have access only to securities on the Moscow and St. Petersburg stock exchanges, as well as investments in real estate and business within the country. The profitability of these assets is estimated at 5-10% per annum. For comparison: the historical profitability of American real estate funds REIT is kept in the region of 10, 9% and does not fall too much during crises.

Which trust management option is best for you

Trustees work with many clients, and not always private investors. For example, insurance companies rarely buy securities themselves; they transfer the money of the insured to professionals. But we will deal with suggestions for people.

If you are just starting out

Collective fiduciary management is best. He has a low entry threshold - 2-3 thousand rubles will be enough for the first investment. Plus, you don't need to worry about where and how to send them: the management company selects assets according to the investment declaration. This document prevents managers from investing in whatever they want.

Almost half of the money of private investors actually goes to the exchange this way. Therefore, everything is in the same boat - if the profitability is low or the investor loses money, then it is not his fault. Most likely, the entire stock market is falling, and collective investments in many assets are even safer than buying shares of several companies on their own.

This service is offered by various investment and pension funds. Professionals collect money from many people in the "boiler" and manage it as a single portfolio: they invest in stocks, bonds and deposits. Financial companies offer many different ways to transfer money.

You can just buy a piece of ETF on the exchange and have a share in a portfolio of hundreds of companies in different countries for a couple of thousand. Professionals will deal with the reinvestment of dividends, taxes and management of the structure.

Another way is to invest in an investment fund. Here the entry threshold is already higher, from 20-30 thousand rubles. For example, "Sberbank Asset Management" takes money from an investor and buys several exchange-traded funds with it. And then he makes sure that the ratio between the assets remains at the same level.

It is worth remembering about some of the features of collective trust management. For some, these will be pluses, and for others, minuses:

• Funds do not report on investments in real time: most often, reports on the results and structure of investments are received once a month. But no one floods with the flow of information, and the investor can relax and not check the stock quotes every day.
• All investors have access to several strategies that may not be suitable for some reason - they will either have to put up with it, or look further.
• Investment funds and management companies are rather strictly regulated by a separate federal law. Companies are limited in the types of operations, composition and structure of the fund that they can offer to investors. But this also means that unexpected and dangerous investments will not appear.

If you want a personal touch

In individual trust management, performers report personally to the investor. In contrast to the collective option, when everyone is offered the same strategies and general distribution of reports.

A separate contract is concluded with the client and a personal investment declaration is drawn up: the investor can prohibit the manager from investing in certain assets or require approval of each purchase.

In theory, this means that any strategy and any instrument will be selected for the client: from bank deposits and precious metals to speculation in the derivatives market and with algorithmic trading.

In fact, many asset management companies offer standard portfolios, but the choice of strategies and assets is wider.

There are proposals to build a portfolio from scratch. And also - to select specific assets for each client, but within the framework of the general investment model.

Let's not forget about the features of this approach, which can be considered disadvantages:

• As a rule, you cannot withdraw money at any time, even partially. You need to either take everything without accumulated income, or provide for such an option in advance, at the stage of the contract.
• There is no access to your portfolio in real time: reports on the dynamics of profitability and the structure of assets are sent either once a week, or even upon request. But you can worry less.

If you love independence

An investor who has already invested money himself and wants to understand further should consider an advisory trust. It will turn out to study financial theory and analysis of markets with a low entry threshold: from several tens of thousands of rubles. This is exactly the amount with which it makes sense to invest not only in ETFs, but also in shares of individual companies.

Formally, consultations are not entirely trust management. The investor manages his investments himself. The management company understands what assets can be suitable for the client, and offers different ideas, and he decides whether he is interested in it or not. If so, the investor makes the deal himself and takes all the profits for himself.

As a rule, for regular recommendations, the client is asked for either a percentage of the portfolio volume, or a fixed commission.

It is worth remembering that the investor himself buys assets, and he is only advised. If a person has not figured out where he is investing and has lost money, these are his problems. Management companies always specify this in contracts.

What are the risks of trust management

The main risk that applies to any investment in the financial markets is that no one guarantees the return on investments due to changing economic and political conditions:

• Systemic risk. This is the likelihood of a major bank or broker collapse that affects the country's financial system. Investment firms are often bound to each other by obligations, and the bankruptcy of one will pull the rest with it.
• Market risk. Crises and corrections occur in financial markets, due to which assets become cheaper.
• Operational risk. Management companies and stock exchanges often disclaim responsibility for information system failures.
• Legal risk. Potential changes in laws may affect profits. For example, raising tax rates. Or sanctions - when the state prohibits investments in the financial assets of another country.

The second most important risk is the knowledge and skills of specialists who work in the management company. The wrong decision of the manager or the wrong calculation of the analyst can spoil the profitability or even bring a loss to the fund, in which thousands of people have invested.

The third risk is the balance of profitability and management costs. Sometimes the market does not grow very well, and the commissions are constant in all conditions. This makes collective management more beneficial than individual or consulting approaches.

How to evaluate a trustee

In order not to carry money to a dubious company, an investor needs to analyze all licenses, ratings and reports of firms.

Check license

Central Bank licenses are the first thing to study before concluding an agreement. The regulator publishes documents on its website:

• register of licenses for securities management activities;
• list of licenses for managing investment, mutual investment and non-state pension funds.

Explore ratings and reviews

Large and reliable companies can hire smart employees and invest in expensive but profitable assets.

Ratings of asset management companies by various parameters are published by analytical agencies, for example, or. They can also study reports on the state of the market and the performance of different firms.

It makes sense to look at customer reviews, for example, on the Banki.ru portal. It may be that the managers provide good returns, but the service in the firm is terrible.

Evaluate the performance and strategies of managers

It is useful to go to the site of the management company and find the "Information Disclosure" section. There will be financial statements that firms are required to publish. Worth exploring:

• amount of funds under management;
• revenue from the provision of services: commissions and investment income in dynamics;
• audit report.

There, on the website, you can see the investment declarations and investment strategies of the company in more detail. Usually, the profitability for the last year or quarter is published, so you can compare strategies with each other or with independent stock market indices.

What is worth remembering

1. Trust management is the transfer of an investor's assets to professionals who profit from them. There is an individual and collective approach to portfolio compilation, and also consultations.
2. The assets are managed by professional participants in the financial markets: they have licenses, time, experience and knowledge.
3. ETFs and mutual funds are similar to trust management: professionals build a portfolio and sell it piece by piece, withholding a commission.
4. No investments, including trust investments, guarantee profits.
5. Trust management is more expensive than independent investments: commissions can reach up to 20% of the profit, so it is important to calculate everything before signing the contract.
6. You should check all permissions, financial statements and reviews of the manager before working with him.