Asset management and wealth management may seem like interchangeable terms, but they are quite different in practice. Asset management is when you hire someone to direct your investments, while wealth management is advice that addresses every aspect of your financial life, from cash flow to goal planning to insurance coverage. Whether you need one or the other will depend on your situation and stage in life.
What is asset management?
Asset management is the practice of advising and managing investments. If you hire a financial professional to manage your assets, that’s their only focus: the performance of your portfolio, evaluation of your risk and the allocation of assets in investments.
“Ultimately, it’s understanding a client’s goals and developing, implementing and managing a set asset allocation to help a client reach those goals,” said Trevor Scotto, a financial planner in Walnut Creek, Calif.
An asset manager can help you design your portfolio, monitor it over time and distribute the assets as needed. “When someone needs to start distributing assets from their portfolio, an asset manager will help them structure the most intelligent and tax-efficient process,” said Alex Caswell, a financial planner in San Francisco.
What services does asset management offer?
Typically, an asset manager will offer the following:
- Risk assessment
- Portfolio design
- Investment rebalancing
- Tax minimization strategies
- Monitoring of investments and investment options
- Asset distribution
What sort of clients does an asset manager serve?
A typical client for an asset manager might be someone just starting out in their career who needs guidance on setting up their portfolio, or someone with a simpler financial situation in general. They might not have the wealth or complicated money scenario that lends itself to more involved wealth planning.
“On the other side of the spectrum is more of a do-it-yourselfer,” Scotto said. This kind of client might want to manage the rest of their financial lives themselves, along with a bit of investment guidance.
What is wealth management?
Wealth management takes a big-picture view of your finances, from estate planning to insurance coverage. Wealth management includes asset management — but instead of just focusing on your investment portfolio, a wealth manager will take all the other facets of your financial life into account.
The benefit of wealth management, among other things, is that wealth managers consider and advise on other parts of your finances, and those parts can be just as crucial as your investments.
“When clients come in and they’ve really had their financial dreams broken, it usually wasn’t because they messed up on investments,” said Robert DeHollander, a financial planner in Greenville, S.C. “It was usually because they missed something on the financial defense side, especially insurance.”
A wealth manager may also help coordinate planning with all the financial professionals in your life, such as your accountant, insurance agent and estate attorney. “Most of the time, what we find is that none of those advisors are actually talking to each other, and things can get missed,” Scotto said. “There’s so much more value the client can have if all the advisors are aligned.”
What services does wealth management offer?
Wealth management will differ from firm to firm, but in general, you can expect to find many of the following on a wealth manager’s list:
- Analysis of cash flow and debt management
- Tax planning
- Retirement planning and goal setting
- Social Security analysis
- Estate planning
- Legacy planning
- Insurance analysis (life, health, property, disability, long-term care)
- Investment management
- Coordination of all your advisors (CPA, estate attorney, etc.)
What sort of clients does a wealth manager serve?
Wealth management clients are typically further along in their financial affairs — whether that’s higher on the career ladder or with a higher net worth. They also may be people with more complex financial situations, such as business owners, people approaching retirement or those in the midst of a life event that has money in motion.
“That might be a birth, a death or an inheritance,” DeHollander said. “They need a professional to look over their shoulder and give them advice.”
Wealth management can also be helpful for someone coming out of a divorce or having just lost a spouse. “It’s a very emotional time, and you need somebody to be your advocate to help put everything in place,” Scotto said.
The common thread for wealth management clients is that they’ve realized there’s more to their financial security than their investment portfolio. “Investing assets is a necessary part of creating financial security, but by far, it’s not the sole driver,” said Erika Safran, a financial planner in New York City.
Differences between asset and wealth management
In thinking about asset management vs wealth management, it’s useful to imagine that asset management is one piece of the wealth management pie. While wealth management includes asset management, it also includes guidance on your overall financial picture, from whether you have the right amount of life insurance to whether you have the right powers of attorney drawn up.
In general, either kind of manager can be registered as a broker/dealer or as an investment advisor, and either kind of manager may carry fiduciary responsibility, or they may only need to offer recommendations that are “suitable” for your portfolio.
Another difference tends to be in fee structure: Asset managers commonly charge a percentage of assets to manage your investments, or they’re paid on commission by the products they recommend. Some may also offer an hourly rate.
Wealth managers may charge a percentage of assets, but there may be an additional fee — a flat rate or hourly rate — for the evaluation of your financial picture and for recommendations. This may be a fee that’s charged once, or annually, or every time you have them revisit your situation.
|Asset management||Wealth management|
|Description||Covers your investment portfolios only||Encompasses all aspects of your financial life|
|Focus||Investments, risk assessment, portfolio strategy, asset allocation and distribution||Investments, insurance, estate planning, retirement planning, education planning, legacy planning, charitable giving, tax planning|
|Compensation||Usually a percentage of the assets under management or commissions from the financial products they include in client portfolios, although some are fee-based||Might be a percentage of assets under management and/or a flat or hourly fee for wealth management services charged annually or as needed|
The tricky part about differentiating asset management from wealth management is that a lot of firms use wealth management language to describe their asset management functions. Many “wealth managers” are really just asset managers.
“My experience has typically been that you can’t put a blanket statement on these terminologies,” Scotto said. “I’ve seen people who work at banks who call themselves wealth managers. It’s very confusing to the end investor.”
Which is right for you?
The decision to go for asset management versus wealth management is a personal one and depends on your goals and circumstances. If you’re a newer investor and just looking for a kickstart to get your portfolio going, an asset manager may be the right call. If you’re looking for more overall guidance or you have a more complex money situation, a wealth manager can help.
How to choose a wealth manager
It’s important to put some time and research into choosing a wealth manager because that person will be advising you on every aspect of your financial life. “At the end of the day, you need to feel really comfortable with the person you’re working with because ultimately, one of the roles of the advisor is keeping the client from making costly mistakes,” Scotto said. “You have to have so much trust in your advisor.”
To that end, ask friends and co-workers if they’ve worked with an advisor they recommend. “The best way to do it is through a referral, if you know someone you trust who’s had an experience and can give you the name of somebody,” DeHollander said. Talk to at least three advisors before committing. Ask a lot of questions, and make sure it’s a good fit.
Some questions to ask:
- How do you define wealth management?
- Who are your typical clients?
- How are you compensated?
- Is any of your compensation based on selling products?
- What is your money philosophy?
- What licenses do you hold?
- What financial planning designations or certifications do you hold?
- What are your areas of specialization?
- Will I work with you, or someone else in your company?
- What kind of services can I expect?
- Are you required to act as a fiduciary?
(This last question is important. As a fiduciary, an advisor is required to put a client’s interests above their own.)
How to choose an asset manager
The process of choosing an asset manager is a lot like choosing a wealth manager, except your range of focus is narrower. As with a wealth manager, it’s still recommended that you speak to at least three advisors before choosing one, and references are a great place to start. You can ask the same questions of asset managers as you would of wealth managers. (But ask them how they’d define asset management.)
Do RIAs offer asset management services or wealth management?
Registered investment advisors (RIAs) may offer both asset management services and wealth management services. It’s important to talk to them about the services they offer so that you understand the scope of their work.
“It’s a case by case basis, firm by firm, advisor by advisor,” Scotto said. “The one thing to point out is that RIAs, as independent firms, are required to uphold fiduciary standards, and if you’re a Certified Financial Professional (CFP), you’re also supposed to uphold the fiduciary standard of care. If there’s any doubt, find an independent investment advisory firm with CFPs on staff, and you’ll be in good shape.”