We all work very hard to earn money but we must also be vigilant on how we manage it in order to create enough wealth to secure a suitable financial future for ourselves. In today’s world the financial sector is flooded with industry jargon, impressive titles and new-fangled investment products which make it a very difficult task to manage your money well unless you have a financial advisor/expert who is knowledgeable and aware of the pros and cons and can assist you to navigate through the chaos.
Personal financial wealth is on a steady growth trajectory worldwide, and in recent years, asset and wealth management has become popular financial services that have spread across a wide range of investor classes. While the two may seem similar there are marked differences and you may need the service of one or both.
This article outlines the difference between asset management and wealth management and also provides key points on how to manage and invest money in the most beneficial way so that you can pursue your desired financial goals.
Asset management in simple terms means managing various assets including stocks, bonds, mutual funds, ETFs, real estate, financial holdings, and other investments. Many asset management firms or individual asset managers are primarily concerned with maximizing returns of their client’s assets but does not delve deeply into the other financial issues such as tax planning, estate planning or retirement planning.
The asset management firms are registered with the Financial Industry Regulatory Agency (FINRA) as their regulatory agency, and the asset managers are usually the broker or dealers who hold a “suitability” legal standard of care. The role of the asset manager is to determine the right investments that are best suited as per your financial situation. The asset management firm works on various avenues such as new investment opportunities, asset allocation, risk-return analysis, portfolio strategy formulation, etc. and charge commissions or a percentage (%) of the asset under management as a fee, as their compensation.
Wealth management is a broader term and is commonly used in business, trades, and by affluent individuals. It is a consultative approach which aims to enhance an individual’s or family’s overall financial situation and at the same time protect the financial wealth in the long run. Wealth management encompasses all financial aspects including accounting & tax planning, legacy planning, retirement planning, insurance, estate planning, charitable giving etc.
The wealth management firms are registered with the Securities and Exchange Commission, and the professionals usually hold on to the higher “fiduciary” legal standard of care. Therefore, a wealth manager may work under different titles such as financial consultants or financial advisors or wealth manager.
A wealth manager/advisor usually develops a long-term strategy based on family dynamics, individual goals, and objectives, existing financial situation, risk appetite, etc. which is then followed by a detailed plan of action for implementation. During the first few years of the relationship, a wealth manager closely reviews the progress of the plan and proactively implements strategies to meet goals and objectives. Wealth management firms charge retainer fees and/or a fee for assets under management or even are charge a flat or hourly rate, rather than commissions for product sales.
Listed below is a quick comparison between asset management and wealth management
|Asset management||Wealth management|
|Definition||Managing client’s assets||Managing client’s overall financial aspects|
|Focus area||Client’s Investments||Managing client’s overall finances including financial planning and asset management|
|Functions||Management of investments/assets such as stocks, bonds, mutual funds, ETFs, real estate, financial holdings, and other global investments||Management of investments/assets, tax planning, portfolio, education planning, retirement planning, cash-flow, charitable giving, estate planning etc.|
|Registration||Generally registered as broker/dealers||Generally registered as investment advisors|
|Responsibility||Offer products which are ‘suitable’ for clients||Carry ‘fiduciary’ responsibility i.e. they put their client’s interest before themselves|
|Compensation||Charges percentage of the assets they manage or are paid commission for financial products they recommend to their client||Charges percentage of the products or services or flat or hourly rate fee for the services|
First and foremost, it is essential to understand the difference between asset management and wealth management, so that you can evaluate and know whom to consider for your needs. However, a large part of your decision will always depend on your goals and the kind of services you need.
For instance, if you are looking for professional advice with investments then consulting an asset manager will be the right choice. However, if your objective is to get holistic advice on your finances such as reduce debts/liability, maximize the productivity of income, financial planning, tax, and estate planning, minimize the impact of taxes on family assets, etc. then you should consider a wealth manager. A wealth manager/advisor can develop a unique plan helping you invest and manage all your financial resources.
Also, there can be few instances when you would require the services of both and hiring a firm which has expertise in both asset management and wealth management will be an easy way to get through this hassle.
While both professional asset managers and wealth managers assist in managing and growing finances it should be taken into consideration that wealth management firms/managers typically work on a long-term strategy considering all real-life issues, rather than work on a plan to accomplish a specific goal through the use of investment products.
In today’s dynamic and complex world, it is essential to take advice from a trusted partner/ financial advisor before investing or managing your hard-earned money. Though the decision of who to partner with is not so simple but, if you have the insightful knowledge towards differentiating between asset and wealth management, it will be fairly an easy task to evaluate and select the right firm for managing your financial resources.
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