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Trust asset management – is a type of the operational and strategic management of the trustee’s assets. When applied to the financial markets, the trust asset management can be defined as performance of investment and trade operations in order to obtain investment revenues, anti-inflationary protection and diversification of the investor’s assets portfolio.

Strictly speaking, there are two types of trust management: direct – i.e., transfer of funds and assets of the individual to the manager without intermediaries- and indirect trust management. The latter type includes PAMM-accounts and investment funds, but in practice, these investment instruments occupy their own niche, and the term “trust” refers to direct cooperation with the manager.

 

Trust Management Objects 

Any assets and property can be transferred to trust management, including real estate, projects and shares. However, in this case, the purpose of transfer would be not to obtain an investment income, but to delegate the responsibilities and to save personal time of the property owner. However a transfer of money, securities and other financial instruments is directly related to investment. Thus, in the narrow sense of the word, the asset management refers to the financial investment, which in this case may be both short-term and medium- or long-term depending on the investor’s objectives and the composition of assets transferred in trust.

 

Functioning mechanism of the trust asset management institute

Terms of trust management in the financial markets are determined individually in each case by agreement between the parties. As a rule, the manager receives the information to access the investor’s trading account in the brokerage company and concludes trade and investment transactions using his account deposit. The investment strategy and the time horizon can be chosen independently by a manager, unless otherwise agreed with the investor in advance, based on his experience and an analysis of each specific market situation.

At the same time it is important that the manager was not able to withdraw funds. Thus, all investment income goes to the account of the investor and the manager receives an agreed percentage or fixed amount.

 

Trust asset management is a good option for

  • those who are keenly focused on an individual approach to the selection of investment options
  • those who want to make a profit from both growth and fall of the assets value
  • investors who are tolerant to high risk levels
  • people who feel psychologically comfortable focusing their investment activities on personal trust only

 

Advantages of trust management 

  1. Upon agreement with the manager, the investment can be made with the risk ratio and profitability comfortable for the investor.
  2. Asset management implies ample opportunities for diversification of the investment portfolio and a flexible approach to the choice of ideal investment strategies and terms.
  3. Profit is charged to the account of the investor at the end of each transaction, and he can withdraw it from the account and spent on daily needs or leave for reinvestment at his sole discretion.
  4. The investor can monitor the work of the manager and assess the manager’s decisions in real time.
  5. In contrast to the indirect asset management, the investor receives contact details and the possibility of personal contact with the manager at any time.

 

Disadvantages of trust management

  1. The main disadvantage of individual trust management is its legal dubiousness – in this case the contract is concluded between two individuals. No organization is in charge of the manager’s operations and his maximum measure of liability, in turn, is limited to personal property. At the same time the legislation of a large number of countries, including Russia, sets the form of the contract for trust management of property which does not apply to money management in the financial markets.
  2. In case of individual trust management the investor deals with high risks of fraud and the only evidence of the manager’s honesty is his reputation.
  3. The investor has to establish the protection mechanism for his trading account preventing unauthorized withdrawal and change of the account access information in case of the manager’s dismissal.
  4. Just like any other form of margin trading (trading with leverage) with financial market instruments, the asset management involves high transaction and currency risks as well as risks of high volatility and low liquidity.

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