Sometimes handling money and making appropriate investment decisions can be challenging. The jargon and acronyms used in the financial world aren’t always easy to grasp, and some people simply don’t have the time or energy to learn them. Fortunately, there are financial advisors that exist to help people manage their funds. In recent years, both wealth management and asset management have risen in popularity in the financial advisement industry, and while they may sound similar, they’re actually quite different.
Asset Management
Asset management literally refers to the management of one’s assets and tends to include financial holdings, exchange-traded funds (ETFs), real estate, stocks, bonds, mutual funds, and other investments. Most asset management firms and individuals have a primary focus on maximizing the return of a client’s assets as opposed to maximizing their overall financial health. The core responsibility of an asset manager is to decide what investments are best suited for a client’s financial situation, and then choose to work on different options such as portfolio strategy formulation, asset allocation, new investment opportunities and more. Compensation for asset managers is usually commission-based, though sometimes they’ll request a percentage of the assets under management as a fee.
Wealth Management
While asset management may take a more narrow look at one’s financial situation, wealth management has a much broader scope. Wealth management is a consultative process with the goal of enhancing a client’s overall financial situation while also protecting their financial well being in the long term. Wealth managers look at their client’s entire financial situation, which includes account & tax planning, legacy, retirement and estate planning, insurance, and much more. There’s a “fiduciary” legal standard of care when wealth managers get involved as well, meaning that they are ethically bound to put their client’s interests before their own. Long-term strategies are developed by the wealth manager and are based around details such as the client’s existing financial situation, their individual goals, and their family dynamic. A plan of action is then shared with the client, and the wealth manager closely reviews it over the course of the relationship in order to stay on top of their goals. Wealth managers tend to charge retainer fees or a fee for assets under management, with some even charging a flat or hourly fee for their services.
Which To Choose?
The first thing to figure out when trying to decide which of these services to employ is what your financial goals are. If investing is your goal but you seek professional advice, then an asset manager is likely well suited for you. If you’re more interested in your overall financial security, such as financial and estate planning or seeking advice on how to reduce debt, you’ll likely want to talk to a wealth manager. Occasionally there are instances where you need both services, so it might be better to hire a firm that has experience in both in order to ensure an efficient and effective process.