The main differences between asset and wealth management (2024)

Recognizing the difference between wealth and assets is key to arriving at an understanding of the main differences between asset and wealth management.

To that end, an asset is anything that can be converted into cash, while wealth is defined as the total value of all assets owned by an entity. This could be an individual, a family, a company,or even a nation. The total market value of an entity’s assets is considered against its total amount of outstanding debts to determine its total wealth.

With all of that said, both assets and wealth can be managed to maximize their potential, so let’s look at each.

What is Asset Management?

Typically focused upon investments such as stocks, bonds, mutual funds, exchange-traded funds (ETFs), and other holdings capable of accruing value, asset management focuses upon the accumulation of assets best suited to your particular set of circ*mstances.

The primary functions of an asset manager are to optimize the performance of your portfolio, balance your risk to reward ratio, and allocate your capital to its best use to achieve your overall goals. To accomplish this, asset managers help you craft your portfolio of holdings, keep an eye on it to ensure it’s performing at its best, and distribute your assets in accordance with those goals. They also help you determine what percentage of your portfolio should be comprised of growth vehicles like stocks and fixed income opportunities such as bonds.

Asset managers also come into play during the distribution of your portfolio’s assets. Their job in that instance is to work to help minimize tax liability and preserve investment capital so the portfolio continues to perform, even as its earnings start to be used to defray living expenses.

Services offered by asset managers include:

• Assessment of risk
• Designing portfolios
• Balancing investments
• Minimization of tax liability
• Portfolio and investment option monitoring
• Distributing assets

A typical asset management client is someone who needs help setting up a portfolio. This could be a young person embarking upon their career path, or a person in need of investment advice. In some cases, asset management can be as simple as a single consultation to get things started for an individual who’d prefer to operate on their own, once their portfolio is assembled and they understand how it works.

What is Wealth Management?

Wealth management tends to come into play once the assets of an entity reach a certain level of performance. Moreover, wealth management goes beyond investments to encompass accounting and taxation, insurance, retirement planning, legacy planning, estate planning and philanthropy.

You may have also seen these people referred to as financial consultants and financial advisors.

Taking your assets into consideration, along with your long and short-term goals, as well as the areas listed above, wealth managers assemble strategies for the long-term preservation of wealth. The parameters around which these plans are constructed include the nature of your familial situation and obligations, personal goals, current financial standing, and the degree of risk to which you are willing to be exposed.

Services offered by wealth managers include:

• Cash flow and debt management analysis
• Tax planning
• Financial goals and retirement planning
• Analysis of Social Security benefits
• Estate planning
• Legacy planning
• Insurance coverage analysis (life, health, property, disability, long-term care)
• Investment management
• Coordination of financial advisors (CPA, estate attorney, etc.)

Wealth managers also revisit your financial situation on a regular basis to ensure the measures they’ve put in place remain relevant to your needs as they evolve. Families grow, beneficiaries change, marriages end and begin again.

Most importantly though, a good wealth manager will ensure all your financial professionals are pulling toward the same result. Accountants, insurance advisors and your estate-planning attorney all need to be oriented in the same direction. Wealth managers can usually help you ensure this is accomplished.

The Primary Differences Between The Two

Perhaps the easiest way to think of it is that wealth management includes asset management, but asset management doesn’t necessarily involve wealth management. Asset managers focus on investments whereas wealth managers look at assets like a building block in the overall structure that is your wealth.

Another key difference between wealth and asset managers is their primary aim. The long-term goal of a wealth manager is to preserve your financial situation. An asset manager’s main function is the pursuit of growth over time. This means an asset manager will offer you various investment products and services designed to help deliver the most significant gains on investments as possible. Wealth managers are more about process and serve you by coordinating the efforts of attorneys, insurance agents, accountants, tax consultants and the like on your behalf to ensure a synergistic gain.

Long story short, asset managers focus on the best way to invest your money with the goal of producing the largest returns possible, while wealth managers concentrate on keeping the money you have by considering the entire picture.

Fiduciary Responsibility

There is another critical difference between the two of which you need to be aware. Earlier, we mentioned asset managers often recommend investment products and services. Generally speaking, they receive commission payments when their clients choose to go with one of their recommendations.

This puts them in a position to benefit financially from recommending one investment vehicle over another, depending upon their commission structure. As a result, it is possible for an asset manager to operate in a fashion more geared toward their personal gain than yours. With that said, there has been a marked shift toward fee-based asset management services, however, there are people out there operating under the other paradigm.

Wealth management firms tend to be retainer/fee-based, although you could encounter charges from a professional they recommend. In most cases though, they are not allowed to get kickbacks from those people. Wealth managers have a fiduciary duty to place the interests of their clients above their own. Generally speaking, asset managers are under no such obligation.

Questions You May Consider Asking

Before signing with either type of firm, it’s key to do some background checking to ensure you’re entrusting your financial well-being with an ethical, experienced and effective firm. Questions to ask include:

1. What are your fiduciary obligations?

Brokerages tend to promote certain stocks because the more of them they sell, the more profit they make. The rules governing their activities are a bit different than those regulating wealth managers, who are legally bound to work on your behalf.

2. What is your compensation structure?

This can be a bit difficult to fathom, so don’t hesitate to ask pointed questions. These should include Are you paid to recommend certain products or people? If so, what percentage of your overall revenue comes from this practice?

3. How often will we meet?

You’ll need to talk to these people on at least an annual basis to assess any developments that may have occurred in your life over the previous 12 months. This is true both for asset managers and wealth managers. When it comes to asset managers, you’ll also want to know how often the performance of your portfolio is reviewed and reported upon.

4. Are you now, or have you ever been accused or convicted of ethical violations?

If there is one thing you absolutely want to avoid, it’s getting tied up with a company that’s under SEC investigation or experiencing any other type of legal problems related to its performance for that matter.

5. How long have you been in this business?

Yes, everyone has to start somewhere, and somebody has to be another person’s first client. However, given this is your financial future we’re discussing here, you’ll probably be better off with someone experienced, rather than someone who is figuring out how things work — with your money. Generally speaking, you want to be affirmed with at least 10 years of solid experience in the areas in which you’re seeking help.

6. How long do clients tend to stay with you?

By and large, successful wealth managers and asset managers see little attrition. After all, if somebody’s making you money, will you really leave them to try an unproven organization or individual? If they’ve been around 20 years, do they have customers going back that far? How many?

Choosing a Wealth Manager

In many cases, the wealth manager you choose will be with you for decades. Because this is someone who will be providing advice on every aspect of your financial life, you want someone with whom you feel comfortable and trust.

Recommendations from colleagues, friends and family can be useful —though you should do your due diligence just the same. Regardless of how good you feel about the first person with which you speak, make it a point to see at least two others so you have a basis of comparison within which to work. You’ll also want to make sure they are indeed engaged in wealth management services as defined above, rather than asset management.

Choosing an Asset Manager

By and large, the procedures are the same, except you’ll want your inquiries more focused on their investment philosophies. Be wary of anyone who engages in active trading and guarantees they can beat the market. Statistics show passive investing in index funds tends to outperform the market in general, while active traders tend to see less impressive results. Another key question to ask investment advisors is to disclose how much assets under management they have.

Which is Right For You?

Perhaps the best way to respond to that question is pretty much everyone with an income is likely to benefit from working with an asset manager. And, once you’ve achieved some success in that regard, you’re likely to need a wealth manager too. Generally speaking, high net worth individuals stand to benefit more from the services of a wealth manager than someone of more modest means. However, that is not absolute.

If you need expert investment advice, an asset manager is where you want to start. However, to pursue a more holistic approach to your finances, in terms of maximizing your income, minimizing your expenses, managing your taxes and planning your estate, a wealth manager may be more going to be positioned to serve you better. Simply put, an asset manager can help you make more money using the money you already have while a wealth manager can help you hold on to your money once you’ve made it.

In Summation