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While asset management and wealth management are similar in many ways – including the overarching goal of maximizing wealth – they differ in the needs they address and their scope.
They are distinct services that serve different functions, have unique methodologies and have varying client bases. Understanding the similarities and differences could be crucial when individuals and businesses are deciding on their financial goals.
Asset management is a financial service whereby a client’s investment portfolio is managed to maximize returns and minimize risk.
Asset managers make strategic decisions on buying, selling or holding assets – such as stocks, bonds, mutual funds, real estate, commodities and other financial instruments – based on market conditions and the client’s targets and risk appetite.
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Wealth management is a tailored advisory service that provides high net worth individuals and affluent clients with personalized and comprehensive strategies aimed at meeting the client’s financial and personal goals, such as financial security, owning a house, education and retirement.
Because its goals are extensive, it takes a holistic approach, covering everything from financial planning to tax optimization.
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Asset management focuses purely on selecting and managing a client’s investment portfolio with the goal of maximizing returns and achieving other financial goals such as growth, income or risk minimization.
Wealth management is much broader in its scope as it is concerned with all aspects of a client’s financial life. Asset management can be a component of wealth management, but not the other way around.
As the scope is different, so too are the types of services offered by both. Asset management services include portfolio design and optimization, risk assessment and mitigation strategies, investment performance analysis, and access to specialized funds such as hedge funds and private equity funds.
In addition to investment management, wealth management services include financial planning, estate planning, tax optimization, insurance and risk management, and philanthropy planning.
The goal of asset managers is to preserve and grow the value of the assets in a client’s portfolio, while the goal of a wealth manager is to improve the overall financial well-being of a client and ensure their wealth can support their personal and familial goals.
Asset management clients are very diverse and include high net worth individuals, companies, pension funds, and governments. Wealth management clients are typically high net worth individuals.
Asset managers are typically highly adept investment professionals that focus on investing, finance and the market analysis.
Wealth managers on the hand must be able to rope in and coordinate between professionals of varying disciplines such as legal counsel, tax experts, accountants and financial planners.
Many get both mixed up as they are both advisory financial services that look to help improve the financial well-being of a client.
They both rely on the use of highly trained and certified financial professionals to provide financial strategies that align with the client’s goals and objectives.
Both services rely on these professionals to continuously monitor and adapt to changing market conditions, economic climate and the client’s own personal circumstances.
Both asset managers and wealth managers use similar compensation structures. Some charge flat fees paid weekly, monthly, annually, etc.
Some charge a commission paid through sold investments. The majority operate a combination of the two, with a fee that takes into account the assets under management plus a commission on investments sold.
Both are also very costly, and usually require the individual or entity looking to invest to have a high net worth or have enough assets for them to manage.
Asset management firms are ideal for individuals and entities that are looking to expand and preserve their investment portfolio.
It is ideal for clients who already have a financial plan in place and are looking to manage their assets by gaining access to specialized financial expertise about markets, financial instruments, and alternative investing vehicles.
Wealth management is ideal for high-net-worth individuals looking for a comprehensive financial strategy to meet certain life goals, as well as clients with complex financial needs such as estate planning and retirement planning.
Disclamer:
This post is for educational purposes only, and the Firm does not directly or indirectly provide these services.
