Those with considerable finances may need help and advice from time to time, in which case there are several options available for professionals to speak to. However, in some cases, their job titles alone won't give you very much insight into just what they do or how they can help. This is often the situation people find themselves in when comparing asset management services to wealth management services.
Asset management will deal mostly with managing your assets in an investment environment. Wealth management, on the other hand, will offer much more broad-based advice. While asset managers may or may not be fiduciary, a wealth manager will likely be fiduciary, though there are exceptions.
Both asset management and wealth management services will be crucial to those looking to wisely invest and manage their finances. For those with substantial savings or investment holdings, understanding how each one can be used to grow existing wealth as well as safeguard investments is vital to a prosperous future. We're going to take a closer look at the management and advising services for both of these positions and how you can use each most effectively.
Difference Between Asset Management And Wealth Management
The biggest differences between asset management and wealth management are in the types of services that each one will offer, their fiduciary status, and their respective compensation structures.
Some of the most significant differences between asset managers and wealth managers lie in the type and scope of services offered by each. An asset manager will, in most cases, manage money and investments for clients. They will be able to help manage the full scope of your liquid assets, including but not limited to opening accounts with brokerages on your behalf, choosing investment vehicles based on their strategy, and even placing trades on your behalf. When you first meet with your financial adviser, they will help you figure out appropriate investment vehicles for your risk level and will set any additional strategies you may need, such as tax-loss harvesting.
A wealth manager will go outside the scope of your investments and liquid assets, helping you to see the big picture of your wealth and financial status. Some of the things your wealth manager will help you with include:
- Risk management
- Insurance protection
- Potential liability issues
- Planning for retirement
- Choosing workplace benefits and stock options
- Estate and succession planning
- Managing trusts
- Tax planning
Many people don't understand what a fiduciary is, which can lead to confusion over many things. Working with financial advisors and other professionals in the field of finance requires some positions to act as your fiduciary. A fiduciary is someone that is legally bound to act in your best interest, as well as to openly and honestly disclose and manage potential conflicts of interest. In some situations, they may be required to fulfill other requirements as well.
Asset managers are relatively evenly split and may or may not be your fiduciary. This will greatly depend on the asset manager or asset management firm you are working with. When you begin a relationship with them, you will need to find out if they will be your fiduciary or not, as this can be a major benefit or drawback depending on your viewpoint. Since your asset manager will be offering management over your primary investment portfolio, it is often more prudent to work with asset managers that will act as your fiduciary, so you can be assured you're getting advice and management that is always in your best interest.
A wealth manager, on the other hand, will be your fiduciary much more frequently, and it is relatively rare to see one that will not hold fiduciary duties. While most wealth managers or wealth management firms will operate under a fiduciary agreement, some won't. It's always best to ask and make sure. While not operating under a fiduciary agreement isn't a deal-breaker for some people, it can make any legal recourse easier if something were to go wrong.
The way in which your managers are paid their compensation is another significant difference between asset and wealth management. Most asset managers will be paid in commissions or compensation based on how much money you invest with them. This may be a fee paid directly from your invested assets or an annual fee that is charged to your asset portfolio each year.
Wealth managers, on the other hand, will have a variety of different compensation models. In some cases, they may operate in a similar fashion to asset managers and charge you a fee based on the amount they manage for you. In other situations, they may charge a set flat rate for each year. Still, others may levy fees based on the complexity of the management strategy or your financial situation. In rare cases or situations where they are only used for minimal advising, they may even charge an hourly rate. Depending on your unique financial situation and management needs, there may also be other fees charged.
Wealth And Asset Management
Depending on your particular financial management needs, you may not need to leverage both types of financial professionals and may only need the services of an asset manager. In situations like this, you will likely be able to hire the other aspects of your finances personally. If you need assistance with a particular task, such as setting up a trust, you could simply use an estate planning attorney on an as-needed basis. This will generally be cheaper than hiring a wealth manager.
Wealth managers will generally charge more than asset managers but will also be able to offer a much wider range of financial advice. While you can get investment advice from your wealth management firm, expect it to be in a broader scope and related to the rest of your wealth. For someone who wants to manage their taxes, create a trust for their special-needs child, as well as create a highly detailed roadmap to ample retirement income, a wealth manager is a better option than someone who specializes in investments.
Asset Management Advisor
The primary goals of an asset manager will be twofold. They are going to help their clients grow their value while also minimizing the risk they're exposed to. This means when you meet with an asset manager for the first time, you'll need to talk to them about your personal risk tolerance. This will be different for everyone and will greatly depend on their life stage as well. Younger investors tend to be more tolerant of risk, with that risk decreasing as their net worth grows and they age. By the time an investor is ready to retire, they will generally be fairly averse to risk. An asset manager will use various analysis tools to create statistical models of the market and potential trends. They will also help perform due diligence and corporate financial reviews for potential new investments.
Once your initial risk profile and financial goals are, the asset manager will create a proposal of various types of investment tools and vehicles that may be a fit for their client. If the client approves of the plan, they will generally have the brokerage account set up and will perform any maintenance or day-to-day oversight of the account.
Wealth Management Advisor
Wealth management advisors are a subset of financial advisors that generally cater to high-net-worth and ultra-high-net-worth individuals and families. While they can offer investment advice, their primary role is much more complex and comprehensive than simply maintaining investments. They can be thought of as a holistic suite of financial management services that can cover your entire financial need spectrum.
While each wealth management advisor and firm will have their own specialties and scopes of service that often cover an incredibly wide range, they will differ slightly. When you are looking at potential wealth managers, you'll generally find that they can cover common needs such as:
- Investment management and advice
- Long term financial planning advice
- Estate planning services
- Trust creation and management services
- Tax strategy and planning
- Family legacy and succession planning
- Philanthropic venture planning
- Insurance planning and associated risk management
- General high-value banking services
- Planning income generation for retirement
- Legal planning and certain legal services
A wealth manager may also serve as a single point of contact for their clients. This makes things much simpler for those that have complicated financial estates, as it consolidates new and existing relationships with people like attorneys, insurance agents, adjusters, and more, into a primary point of contact.
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Understanding Asset & Wealth Management Is Important For Your Financial Future
Both asset and wealth managers can help you manage your finances easily, taking much of the burden off of your shoulders. Just make sure you consider their fiduciary duty, if any, and keep in mind the services you'll need versus what they will charge for those services. In the end, you'll have the information you need to make a well-educated decision about your financial management strategy.
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Shawn Manaher is a former financial advisor, has founded 5 online businesses, and is a coach, speaker, podcast host, and author. He's been featured on Forbes, The Consults Corner on TAE Radio, The Writing Biz, What's Your Story, and more.