Is your financial situation getting increasingly complex? Maybe your salary has stepped up a notch, and your tax bill’s gone with it. Or perhaps you now have millions in investable assets and an old estate plan that’s unfit for purpose. Or maybe you’ve inherited a large sum of money and don’t have a clue what to do with it.
Whatever your situation, seeking professional assistance from a wealth or asset management firm could be the way forward. But which of these financial services is best for your needs? To help you decide, we’re discussing asset management vs. wealth management and revealing the key differences between these two oft-conflated terms. Let’s dive in.
What Is Asset Management?
Asset management is a financial service involving the direct management of – you guessed it – client assets, which, in this case, usually means their investments. Think stocks, bonds, mutual funds, ETFs, and other financial instruments, such as property and equity. The primary goal? To maximize each client’s returns and minimize loss exposure. Or, to put it another way, to grow their money.
An asset manager (sometimes called an investment advisor) might operate independently or through a larger company. And, contrary to what many people think, you don’t have to be a high-net-worth individual to hire one. Just remember to check they’re a fiduciary beforehand. That way, you can sleep sounder at night, knowing your best interests and not theirs are guiding their actions.
What Is Wealth Management?
Wealth management is a financial service designed to help high-net-worth clients create, protect, enhance, and transfer wealth. However, unlike asset management, which is a subset of wealth management, the focus isn’t exclusively on investments. These enter the picture, but the scope here is much broader.
Expect a holistic service that takes your overall financial situation into account. From tax, retirement, and estate planning to things like insurance protection, charity donations, and trust management, wealth managers have wide-ranging expertise that lets them meet the complex financial needs of their clients. Most legitimate wealth managers are fiduciaries, but it’s still worth checking before hiring them.
Key Differences Between Asset Management vs. Wealth Management
Many people use the terms asset and wealth management interchangeably. However, as you can tell from the definitions, they’re not quite the same.
While they’re both key components of financial planning that help people manage (and grow) their financial resources, they also differ in scope, focus, and target clientele. Understanding those distinctions is central to choosing the right service for your needs. Here are the main differences to keep in mind:
Priorities
Asset managers have a single, well-defined goal: to maximize the returns of their client’s investment portfolios. As a result, their role is quite narrow. You’d hire them to efficiently manage your property, stocks, fixed-income securities, and other such assets, expecting to watch their value grow exponentially over time.
In contrast, wealth managers have a much broader focus. In a bid to maximize and protect their client’s wealth over time, they manage and offer advice on the entirety of their financial affairs. Investment growth is a vital piece of this puzzle, but the client may also receive support with their taxes, estate planning, and so on – depending on their unique circumstances. Financial security, newfound peace of mind, and a higher quality of life should all ensue.
Services and Management Approach
The differing priorities of asset management vs. wealth management mean the type of day-to-day financial support they offer varies, too.
Among other responsibilities, asset managers monitor/assess the market, perform risk-return analyses, open investment accounts, place trades, and issue general advice on matters of asset allocation. Their approach to management is also a product of their narrower focus. As investment specialists, they tend to be very specific and technical when determining the right investment strategy for clients.
Wealth managers offer many of those same investing services while also guiding clients on financial matters mentioned earlier (i.e., tax, retirement, and estate planning). Their management style is comprehensive and process-driven, taking a collaborative approach that leverages the expertise of other relevant professionals, such as the client’s accountant, insurance provider, and attorney.
Compensation
The way asset and wealth managers make money often differs as well. Although the percentage varies, both tend to charge fees for assets under management (or AUM fees, for short), with 1% of the portfolio per year being typical. Anyone hiring an asset management company will pay significantly lower fees if they use a robo-advisor rather than selecting active investment management.
However, asset managers can also earn a commission on investment products they sell, plus brokerage fees when they open accounts and/or make trades. Depending on their specific services, wealth managers might also charge a retainer, hourly, or flat fee. In all cases, fees usually drop as the value of assets under management increases.
Client Wealth
Another difference when you compare asset management vs. wealth management firms is the type of clients they work with. In general, the former is more accessible for people who have a lower net worth. In contrast, wealth management is usually reserved for high-net-worth (and sometimes even ultra-high-net-worth) individuals.
The threshold to access wealth management services varies between companies and the services they provide, though. Some require clients to hold at least $250,000 in investments, while others stipulate $1 million or above. If you’re still working toward that level of wealth, then asset management could be the only option.
Access the Right Financial Support Today
When your financial situation has become too complex to handle, seeking support from an asset or wealth manager can make a big difference. Unfortunately, given the prevailing confusion around these two services, many people struggle to know which is most appropriate for their needs.
Have you been in this predicament recently? Well, having compared and contrasted asset management vs. wealth management in this article, we hope you’re now in a better position to choose.
Find a Financial Advisor
Whether you’re looking for a specialist financial planner who can meet with you online, or you prefer to find a nearby financial advisor, you deserve to work with a professional who understands your unique circumstances.
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Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.
Frequently Asked Questions
How do wealth managers and asset managers get paid?
Both commonly charge a fee based on a percentage of the assets they manage. Some asset managers also earn commissions or brokerage fees, while wealth managers may charge retainers, hourly rates or flat fees for planning. Ask any provider for a written breakdown of every fee you will pay, since costs compound over time just like returns.
Is a wealth manager the same as a financial advisor?
A wealth manager is a type of financial advisor, usually one who serves higher-net-worth clients with a broad mix of services such as investments, tax planning, estate planning and insurance. “Financial advisor” is a broader term that can describe planners, investment managers, brokers and others. Titles vary, so look at the services, credentials and fee structure rather than the label.
Do wealth managers and asset managers have to act as fiduciaries?
Registered investment advisers are required to act in your best interest and not put their interests ahead of yours, according to the SEC’s Investor.gov. Not every financial professional is held to that standard, so ask directly whether someone will act as a fiduciary at all times. You can check a professional’s registration and disciplinary history with the free search tool on Investor.gov and review the firm’s Form ADV brochure.
When should you switch from asset management to wealth management?
Many people consider wealth management when their finances become more complex, for example after an inheritance, a business sale, a large equity compensation package or the approach of retirement. At that point, tax, estate and insurance decisions can matter as much as investment returns. If your needs are mainly investment-focused, asset management alone may still be enough.
About the author
Contributing Writer, Wealthtender
Danny Newman is a nationally syndicated freelance writer with a focus on travel. MSN feed and Associated Press bylines. Danny is a digital nomad from the UK who’s been traveling full-time since 2018.
He writes about travel tips, planning, adventures, and escaping the rat race on his travel/lifestyle site What’s Danny Doing.