Many terms get thrown at you when you first start thinking about managing your finances and perhaps engaging with professionals. Financial planners, financial advisors, brokers, investment advisors, financial consultants, and even licensed insurance professionals. This group of diverse professionals wants to offer you financial planning, investment advice, financial consulting, fiduciary services, asset management, and wealth management. Your head is probably swimming, and rightly so. Let’s see if we can’t clarify some of this and help you to know what you need.
Asset Management Defined
Asset management means managing your finances by acquiring, maintaining, and trading your investments in ways that have the potential to make your assets grow in value. The intent is to increase your total wealth over time. Asset management professionals perform this service for a fee, usually based on the amount of assets under management. They may be called portfolio managers or financial advisors, or almost any of the names listed above.
Wealth Management Defined
Wealth management is a much broader advisory service that works to combine various other financial services to address the wide-ranging needs of affluent clients. A wealth management professional specializes in managing an affluent client’s wealth and assets as a whole, typically for one set fee. While almost any of the titles we’ve already listed can do this work, this is a place where you will often encounter professionals like Chartered Financial Analysts and Certified Financial Planners.
In its more accurate sense, firms offering wealth management can usually provide a broad range of services. You will not just have a financial account that manages your assets (probably for an asset-based fee). You will have access to estate planning, retirement planning, ways to handle your stock options, if any, risk mitigation through insurance products, and even tax planning. Of course, only relatively affluent people will need all these services.
A more broadly applicable definition might be using processes, services, and products designed to grow, protect, utilize and ultimately distribute your financial assets. For some, that may mean your own space company, a social media platform, and an electric car company. For others, that may mean you need help with your paycheck and your 401(k) or IRA. Whichever is closer to you, the goal is to end up with more than you had when you began.
How Do They Differ?
Asset management focuses almost entirely on maximizing the value of an individual’s investments and their returns. Wealth management, in contrast, seeks to maximize and protect the individual’s overall financial status for a lifetime.
How is Asset Management Done?
Generally, an investment professional will be an investment advisor, but it is sometimes another financial professional. The advisor focuses expertise and experience on acquiring and managing a client’s investable assets. These assets might include cash and cash equivalents, securities, including stocks, bonds, and mutual funds, in brokerage and retirement accounts, insurance policies, annuities, and even, on occasion, derivative investments. This wealth manager probably works alone or with a small team of investment professionals and does not offer tax or legal advice.
In essence, asset management is the process of acquiring, developing, operating, maintaining, and selling assets in a cost-effective and, hopefully, profitable process. An investment professional will obtain background information on the individual or couple whose assets the advisor manages. This information will include income and net worth, investment goals and objectives, risk tolerance, time horizon, marital status, number of dependents, employment information, tax status, and other similar relevant information. This investment professional will generally be required to act in your best interests as a registered representative of a broker-dealer or under a fiduciary duty as an investment advisory representative. While there are technical differences between these two standards, they both, to all intents and purposes, require your investment professional to put your interests ahead of those of the advisor or the advisor’s firm.
How is Wealth Management Done?
Wealth management is more broadly focused. In comparing asset management vs wealth management, you will see that asset management uses a rifle approach while wealth management is a shotgun. Wealth management looks at the individual’s entire financial life: earnings, investments, insurance, college planning, legacy planning, retirement planning, tax planning, and estate planning. These are knit together in an integrated and well-planned assessment of the individuals’ needs for themselves and their families. To accomplish these wide-ranging goals, the investment professional will use a team of skilled professionals. These additional professionals will include tax specialists, estate planning attorneys, accountants, and trust lawyers. Working together, these professionals will build a wealth management plan that provides for the entire family. The parents will have retirement and estate plans in place and arrange college savings for any children. The trust lawyers will create any necessary trusts, and the legacy that the couple chooses to leave will appear in that trust. Instead of just generating increasing assets, wealth management strives to use them wisely and knowingly.
A wealth management professional will obtain all the same background information as an asset manager and will begin by doing essential financial planning. However, the wealth manager will go much further. The wealth manager will delve deeply to fully understand your long-term life goals. Then the manager will integrate your financial plan with tax planning, ongoing investment advice, retirement planning, estate planning, and any other services that might be necessary to help clients achieve their goals.
Which Is Better for You?
Whether you need asset management or wealth management depends primarily on who you are and what you have. Those who are still far away from retirement and just beginning to build their financial portfolios probably do not yet need the more extensive and, frankly, usually more expensive wealth manager services. However, suppose eventually you have done an excellent job with your asset manager and have assets nearing $500,000. In that case, it may be time to examine your life and determine whether to switch to a wealth manager who can more holistically manage wealth. Contact an investment management professional today to begin the process.