Asset Management vs Wealth Management: Understanding The Difference

It may be hard work earning money, but this certainly isn’t always the case when it comes to spending it. Keeping control of our finances is vital in ensuring that we continue to assure ourselves of financial stability long into the future. 

Today, the financial sector is brimful of various industry jargon, superfluous titles and various tools that can ultimately complicate the task of holding our money. It can often seem like a daunting challenge to manage our finance effectively without the help of a knowledgeable financial advisor. 

Asset and wealth management are financial services that are enjoying a rise in popularity over recent years. Both terms may seem similar but there are some key differences that demand attention. To help shed some light on both the similarities and contrasts between asset and wealth management, let’s weigh both services up individually before determining which could be best for you:

Asset management in a nutshell

Fortunately, asset management is a pretty straightforward financial service to understand. Assets relate to all of your financial holdings, and asset management typically focuses on your investments – including your stocks, bonds, mutual funds, ETFs and any other quantifiable investments you hold that could gain value in the future. 

Should you decide to take out this service, an asset manager will act to determine the investments that could be a strong fit for your needs. They’ll allocate assets and divide investable assets to fall in line with your individual goals. Asset managers can also take a forensic look into your portfolio and determine what percentage of it should be built on stocks and growth products, and what should be based around fixed-income products like bonds. 

Asset managers typically earn money based on the percentage of assets that fall under their management. Payment rates tend to take on a progressive form and will decrease the more money an asset manager oversees for their investor. 

(The number millionaires around the world. Image: The Economist) 

Wealth management in a nutshell

Wealth management is something of a broader term to define and is typically used in business, trades, and by wealthy individuals. Services here are designed to aid a client or company’s financial situation overall, while also consolidating their long term wealth. 

This form of financial management takes into account all financial aspects relating to a client, including accounting and taxation, insurance, retirement planning, legacy planning, estate planning and acts of charity among many other considerations. 

All professional wealth management firms are registered with the Securities and Exchange Commission and wealth managers are known to operate under various titles like ‘financial consultant’, ‘financial advisor’ or ‘wealth manager’. 

Wealth managers tend to construct long-term strategies based on specific family dynamics, individual goals, existing financial circumstances and aversion to risk in order to craft a comprehensive plan of action. Over the early years of a partnership, a wealth manager will forensically investigate the progress of a plan and carefully implement strategies designed to meet new goals and objectives. 

It’s worth noting that wealth management firms can carry different approaches when it comes to payment. While many charge retainer fees, others can charge for assets under management and it’s not unusual for some firms to have clients that pay on an hourly rate as opposed to any form of commission. 

Key variations between asset and wealth management

The most significant difference between asset and wealth management is the level of focus in both departments. While asset managers are wholly intent on taking care of a client’s investments, wealth managers take a broader look at their entire financial circumstances in order to optimise their money in a way that achieves individual goals and ambitions. 

There’s also a notable contrast in the results that both approaches record. Wealth managers typically focus on the preservation of a client’s finance, while asset managers aim to produce tangible returns on investments. 

As they’re primarily investment experts, asset managers typically offer in-house products and services and are more sophisticated in their approach towards maximising the potential of your assets. Whereas wealth managers are more process-driven and aim more for synergy gains through a combination of various inputs from industry experts, client attorneys, accountants and insurance agents among other figures. 

Asset management companies tend to be registered broker-dealers and are required to only offer products that are deemed suitable for clients, while wealth management firms are registered as investment advisors and have a fiduciary responsibility to uphold the financial interests of clients above their own. 

As we touched on before, asset management compensation tends to be more commission-based, however, there’s been a notable shift towards more fee-based services in recent years. Wealth management compensation models remain traditionally retainer fee-based along with further fees for assets that are under management. 

Asset managers advise based on asset allocation, emerging investment opportunities, risk-return analysis and portfolio strategy among other concentrations – meaning asset management is solely focused on the best way to strategically invest a client’s money while the nitty-gritty of taxation, cash-flow and estate planning is left for the client to figure out for themselves. Whereas, wealth management takes on a comprehensive view of a client’s entire financial situation – specialising in giving advice for future planning. This makes wealth management a particularly useful option for prospective clients approaching retirement age. 

Which approach is right for you? 

Of course, it’s important to say that there’s no right or wrong answer to this question. There’s also no one-size-fits-all solution. Everybody is different, and even if you and somebody else have very similar financial situations, your different intentions could mean that one would need asset management and the other wealth management. 

Before you decide on which form of financial management would work best for you personally, be sure to take a moment to ask yourself whether you fully understand the differences between asset management and wealth management. While both approaches are designed to positively impact your financial circumstances, their suitability will heavily depend on your personal needs. 

For example, if you’re looking for expert investment advice, then getting in touch with an asset manager could be the best option available to you. However, if you’re aiming to gain a more comprehensive level of advice on how to reduce your outgoings and boost the efficiency of the money you’re making, along with insights into your taxation, estate planning and tax on family assets, it’s worth contacting a wealth manager. 

It’s important to note that you don’t have to get into touch with one service and not the other. In some cases, you may benefit from insights into investments via asset managers while taking on board some more holistic advice with the help of wealth management firms. 

Key takeaways

Sometimes we hear the terms wealth management and asset management used interchangeably, but there are important differences between the two services. Both may be used as a tool for managing and growing financial resources, but service users may require further expertise that stretches beyond their investments. 

Asset managers are well-positioned to spot market potential in assets that could boost your profit margins in a strategic way. Whereas the more comprehensive wealth management model offers greater assistance in overcoming a range of financial hurdles in a way that simple asset management couldn’t compete with. 

Of course, a more exponential service comes at a heavier price, and retainer fees can be expensive for some clients that would rather have a cost-effective form of gaining advice. But for the level of detail users can get for their money, it could be worth every penny in helping them achieve their specific goals. 

Naturally, we’re all working towards the goal of financial stability, but it’s vital that we choose a management plan that best suits our needs in achieving our goals. Whether you’re starting on the career ladder, or looking to ease into retirement, it’s worth assessing how you want to manage your money, as well as how to get the best out of your finances. It’s never too early or late to invest in the future.