Both asset and wealth managers focus on managing investment portfolios on behalf of their clients. However, there are some significant differences between asset management vs. wealth management.1
Asset managers primarily work on growing their clients’ assets to maximize returns. Wealth managers have a broader focus and offer a range of financial services and advice aimed at helping high-net-worth individuals (HNWIs) manage their wealth and achieve their long-term financial goals. Read on to discover more differences between them.
What Is Asset Management?
An asset is a resource that’s expected to produce a profit. Assets can include real estate, stocks, bonds, businesses, patents or any other type of investment. Asset management involves managing a clients’ investments on their behalf in order to increase the assets’ worth. Asset management firms monitor market trends, make investment decisions and execute trades.
What do Asset Managers Do?
Asset managers’ primary goal is to put their clients’ money to work for them.2 Asset managers work with a broad range of clients, from institutional investors such as pension funds to individual investors with high net worth. They may work alone or as part of a larger firm. An asset manager may be referred to as a financial advisor, an investment broker or a registered investment advisor (RIA).
Asset managers usually charge a fee for their services. This fee is often a percentage of the assets they manage and covers the costs associated with managing the assets and providing support and advice to their clients.
Asset managers use a variety of tools and techniques to create a personalized strategy for managing their clients’ investments. They include:
Financial modeling allows asset managers to forecast future investment returns based on algorithms and statistical models. They analyze market trends to identify investments that best align with their clients’ goals.
Risk management techniques help minimize the risks associated with investing. These techniques can include diversification, which involves spreading out investments; hedging, which is investing in one type of asset to offset losses in another; and stop-loss orders, which involves automatically selling an asset at a predefined price. Asset managers will develop risk-management strategies based on their clients’ goals and risk tolerance.
Asset Allocation Strategies
Asset allocation strategies help investors build diversified portfolios that maximize returns and minimize risks. An asset manager may choose a mix of different types of assets, such as real estate, bonds and stocks, to ensure their clients aren’t too heavily invested in one particular type of asset.
Asset managers use financial software to analyze market trends, track investment performance, and identify opportunities for new investments. This type of software can include research on potential investments, data analytics to try to predict future profit and portfolio management platforms that automate tasks related to managing investments.
This type of research lets asset managers evaluate the future prospects and financial health of investments they’re considering. They’ll look at industry trends, financial statements and reports and other economic data to evaluate companies for their growth potential.
What Is Wealth Management?
Wealth management is a holistic approach to helping people with high net worth continue to grow their wealth and protect their current assets. It’s the highest level of financial planning services and includes a strategic plan and advice on multiple financial issues such as estate planning, asset management and tax strategy.
What Is a Wealth Manager?
Although wealth managers work with financial assets as well, their scope is much broader. They also manage other aspects of their clients’ overall financial situations. Wealth managers’ goal is to protect and maximize their clients’ wealth over the long term. Wealth managers deal with more areas of clients’ finances than asset managers do. They help their clients with all of the following aspects of wealth management:3
Financial planning involves taking a structured approach to creating a comprehensive financial plan. A financial plan includes clients’ goals, income, expenses, assets, liabilities, tax situation and risk tolerance.
A financial plan helps people achieve financial goals such as creating college funds, funding retirement or estate planning. It begins with the current financial situation and provides a roadmap for achieving short-term and long-term financial goals. A financial plan is an ongoing effort that will be monitored and revised as needed.
A significant part of wealth management is investment or asset management, which involves managing assets such as stocks and real estate to maximize returns.
Careful tax planning is a cornerstone of wealth management. An effective tax plan minimizes tax burdens with strategic planning. Tax plans identify potential areas of tax savings based on current tax positions, including deductions, income, credits and other factors.
Tax-efficient strategies are the heart of tax planning, with the goal of minimizing the amount of tax people will owe on their income, capital gains and other assets. Some common tax strategies include tax-loss harvesting or tax-advantaged investment vehicles.
Estate plans outline strategies for transferring money and other assets to one’s heirs. The details of an estate plan will depend on estate planning goals, which can include passing wealth to a person’s children and other relatives as well as charitable giving.
Estate plans include documents such as wills, trusts, investments and updated beneficiary designations. They need to be monitored and updated as financial situations and laws change.4
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- Retrieved on July 12, 2023, from chase.com/personal/investments/learning-and-insights/article/asset-management-vs-wealth-management
- Retrieved on July 12, 2023, from investopedia.com/terms/a/assetmanagement.asp
- Retrieved on July 12, 2023, from investopedia.com/terms/w/wealthmanagement.asp
- Retrieved on July 12, 2023, from fidelity.com/life-events/estate-planning/basics