Once You've Picked a Manager, Here's How the Machinery Works

Once You've Picked a Manager, Here's How the Machinery Works

Choosing an external asset manager is frequently confused with choosing a

financial adviser, and the two are not the same exercise. Some advisers do

operate as a kind of pseudo external asset manager, using platforms built for

financial advisers to run client money in a similar way. But the sequence that

actually defines an EAM relationship, and where the value in it comes from,

looks different once it is broken into its parts.

The order of decisions

The manager comes first, and the platform second. This is the reverse of how

most people approach the bank channel, where the platform, meaning the bank

itself, is usually chosen first and whoever sits behind the desk comes with it.

Choosing the manager. The selection generally rests on three things: trust

in the individual or the firm, a track record that can actually be examined,

and the manager's demonstrated ability to solve the specific, often unusual,

problem the client has. This last point matters more than it sounds. A manager

who is excellent at growing a diversified equity portfolio is not automatically

the right choice for a client whose real need is structuring around a business

exit or a concentrated single-stock position.

Choosing the platform. Only after the manager is chosen does the platform

question arise, and it is a real choice, not a formality. Securities firms and

fintech platforms, names like moomoo, Syfe, Revolut, and Endowus among others,

offer sharp pricing on execution and custody. What they generally do not offer

is the banking infrastructure that sits behind a private bank: Lombard lending,

preferential financing rates, and the breadth of support services a private

banking shelf provides. Neither platform type is universally better. The

private bank sells infrastructure and lending capacity; the fintech platform

sells low-cost execution.

In either case, the EAM's function is the same: either to compress the fee drag

down to the lowest achievable level, or to justify a higher fee by delivering

value that a lower-cost platform structurally cannot.

Discretionary, non-discretionary, or a fund

Once manager and platform are set, the mandate structure is the next decision.

A discretionary portfolio management mandate, DPM, gives the manager authority

to act without approving each trade. A non-discretionary mandate requires the

manager to propose and the client to approve before anything moves. Some EAM

shops also run their own fund, in which case the client is investing into a

pooled vehicle the manager has built, rather than holding a segregated mandate.

Which of the three is available depends on the specific shop, not on the client

alone.

Not bound to a single manager

A detail that is often missed entirely: appointing a main asset manager does not

lock a client into that one manager's own strategies. The main manager can, in

turn, allocate a portion of the mandate into a specialist strategy run by a

different manager entirely, consolidated under a single overall fee to the

client. This layering, one manager selecting and blending in another's

expertise on the client's behalf, is one of the more underused features of the

EAM relationship, largely because most clients are not aware the option exists

to ask for it.

How the fee actually splits

Two fee structures are standard in the industry, and they map onto the

discretionary and non-discretionary mandates above.

Under a DPM mandate, the typical annual management fee sits around 1 percent,

and the EAM separately retains retrocessions or commissions generated on

trading revenue, trailer fees, and structured note fees. Under a

non-discretionary arrangement, the EAM similarly earns from trading revenue,

trailer fees, and structured product fees, but only executes at fee levels the

client has agreed to in advance, with the client approving each transaction.

This second structure is closer to how private banks and many financial

advisers already operate.

It is worth being clear that fees exist in both structures. The comparison that

actually matters is not "fee versus no fee," it is the same comparison that

applies to a retail investor choosing between a fund charging 1.5 percent on a

basic US equity exposure and a fund tracking the same broad market for a total

expense ratio of 0.03 percent. The fee itself says very little. What it is

buying, or failing to buy, says everything.

Where the EAM can build rather than just access

At this level, the EAM is not limited to selecting from an existing shelf. A

capable EAM can construct a product to meet a specific requirement, the clearest

example being a principal protected note engineered to target a 4 to 10 percent

return net of commissions, a structure that a private bank will not always

surface, either because it does not suit their own shelf economics or because

the specific manufacturing capability simply is not something they offer

directly.

The network effect

Working through an EAM alongside a private bank generally opens both networks

at once, the EAM's own manager relationships and the private bank's product

shelf together. This combined access is where allocations to quantitative

funds performing in excess of 20 percent, typically charging only a performance

fee rather than a management fee, tend to surface. These funds commonly close

to new subscriptions after a defined window and are built to run largely

uncorrelated to broad market movements. This layer, sitting above what either

the EAM or the private bank offers on its own, is generally where the most

meaningful outperformance in the entire structure is actually found.

*If you would like your own platform, mandate, and fee structure reviewed

against what is actually available in the market, the next step is a

confidential discussion. Please see the [Confidential Discussion

Notice](https://thelegacybriefs.com/confidential-discussion/) before you begin.*