It goes without saying that money management is essential for everybody. It’s especially true for people who earn a decent monthly salary but aren’t experts in managing their finances. One may find themselves in despair if they discover that after working tirelessly for their career, they still can’t spend their retirement in contentment. This usually happens when you aren’t efficient in your money management.
Spending money is way easier than earning it. That’s why it’s vital to keep control of your finances to ensure financial stability in the years to come.
You’ll likely want to find a person to help you in ensuring you achieve your financial goals. Collectively, the types of professionals you’re likely to hire fall into the broad category of a financial advisor.
Asset management and wealth management are the two major services you can get within this sphere from the financial advisors. Depending on your situation, you may need both or only one of these services. This post takes an in-depth look at asset management vs wealth management to help you determine which service best fits your needs.
Wealth Management in A Nutshell
Wealth management is a broad term that’s commonly used by affluent individuals in trades and business. It encompasses all financial aspects, such as charitable giving, estate planning, insurance, retirement planning, legacy planning, tax planning, accounting, etc. Wealth management is a consultative approach. It aims to enhance a family’s or individual’s overall financial situation and protect the financial wealth going forward at the same time.
Wealth managers may work under different titles since they’re professionals who usually hold on to a higher fiduciary or legal standard of care. They can be wealth managers or financial advisors or financial consultants. The wealth management firms are also registered with the SEC (Securities and Exchange Commission).
Based on risk appetite, existing financial situation, individual objectives, and goals, a wealth advisor or manager usually develops a long-term strategy for clients. A detailed plan of action will then follow for implementation. Wealth managers closely review the plan’s progress, and proactively implement strategies for meeting goals and objectives. Firms that offer wealth management services either charge an hourly or flat fee or retainer fees and a separate fee for managed assets.
- You’ll get benefitted from customized services. That implies the individualized services they offer are tailored to your financial goals.
- Wealth management is relationship-based. It implies a wealth manager will constantly think of you, particularly your finances. They’ll work with you and help you navigate the market.
- Wealth managers will help you in creating a comprehensive financial strategy. You’ll get a comprehensive plan, allowing you to prioritize financial goals over time and make strategic decisions.
- Wealth management involves costs. Wealth managers typically require annual fees. The costs are based on the size of your portfolio and are determined based on a sliding scale. The average rate is around one percent of your AUM (Assets under Management).
- Risks exist anytime you invest. It doesn’t matter what your investments are, there will always be a risk of loss. That’s why you must sit with your asset manager and assess your risk comfort.
- The wealth manager handles everything. You have to place a lot of trust in your wealth manager. Remember that with management services, you actually trust someone else with your wealth instead of managing it yourself.
Asset Management In A Nutshell
It’s easy to understand asset management since it’s an essentially simple financial service. As you probably already know, assets relate to your financial holdings. That being said, asset management stresses on your investments, including ETFs, mutual funds, bonds, stocks, and any other quantifiable investment that could get monetary worth in the future.
Based on your needs, an asset manager will determine the best investments for you should you decide to avail of this financial service. They’ll make sure that everything falls into the right places by allocating assets and dividing investable assets compatible with your individual goals. An asset manager may take a forensic assessment of your investment portfolio to determine its percentage based around bonds and other fixed-income products, and growth products like stocks.
Asset managers generally earns on the basis of the number of assets they’re managing. Payment rates will lessen, the greater money or assets an asset manager manages for the investor.
- Somebody else will do the work for you. A professional does the job of researching and assessing market trends instead of spending hours doing it yourself.
- It’s easy to track your assets, see the status of your investments, and where they’re located. That’s because everything is in one place.
- Asset management’s goal is to mitigate risks. It does that by preparing ways to minimize or avoid losses. By reducing risk and maximizing rewards, asset management can grow your assets over time.
- You’ll have access to a greater number of investment opportunities. An asset manager comes up with way to help investors grow their money every day. That being said, you can take advantage of alternative and traditional investment services, as well as funds you probably aren’t aware of.
- You’ll encounter fees. It proves to be convenient and relieving to get an expert for all the research and effort. They facilitate you by managing a portfolio, however note that these institutions charge you for it. They may charge a flat annual fee or some percentage on their managed accounts. Depending on the size of the portfolio, the rates can typically range between $5,000-$10,000.
- The potential loss is still possible. You could incur losses if the company or individual managing your assets doesn’t properly mitigate risk.
- There’s an investment minimum required with most asset management services. Yes, investment minimums exist since they’re only available to select clients. Management companies have wealth criteria you have to meet, ranging from a hundred thousand to five million dollars for high net-worth individuals. The wealth criteria vary depending on the company.
The Key Differences Between Wealth Management and Asset Management
Below is a discussion of the differences between wealth management and asset management:
- Asset management’s objective is to balance the performance, risk, and cost of assets. On the other hand, wealth management’s aim is to maintain and increase a client’s long-term wealth.
- Wealth management companies are registered as investment advisors. Conversely, asset management companies are incorporated as brokers or dealers.
- Wealth management is the management of your overall finances by professionals or experts. As opposed, asset management is concerned with assets/investment management on behalf of clients.
- Asset management involves identification of appropriate investment vehicles, risk-return analysis, data gleaning, and analysis, as well as strategic planning and implementation. In contrast, wealth management covers risk management, retirement planning, legal planning, estate planning, asset management, portfolio management, tax planning, financial planning, etc.
- Asset management is one specific part of wealth management. That’s because wealth management includes a wide range of advisory and financial services, which include asset management.
- Wealth management involves improving/solving a client’s financial situation. As against asset management, which encompasses investments/assets monitoring and managing for clients.
- Wealth management falls under the category of consultative services. What usually happens is that the advisor extracts information regarding the client’s risk tolerance level, needs, and return expectations, then creates a strategy for investing in suitable financial services and products. On the contrary, asset management is more like a systematic technique of actively overseeing, managing, and investing funds of clients into productive investments.
Asset Management Vs. Wealth Management: Which Is Perfect for You?
Figuring out whether wealth management or asset management is the right fit for you, ultimately depends on your goals and the services you need. An asset manager can help you find the best options for your next investments but leave all other aspects of your finances to you.
That being said, asset management is the right choice for you, if you only want help in terms of investing. On the other hand, wealth managers will help you with everything, from planning for you or your children’s education to estate planning. That being said, you’ll want to sign up for wealth management services, if you want some help with setting up your finances entirely.
Both professional wealth manager and asset managers assist you in managing and growing your finances. Note, however, that wealth management firms typically consider all real-life issues and work on a long-term strategy instead of working on a plan and using investment products to accomplish a specific goal.
It’s essential to take advice from trusted financial advisors before managing or investing your hard-earned money in today’s complex and dynamic world. The last thing you’d want to happen is to lose your asset or wealth instead of growing them. The decision of who to work with (asset managers or wealth managers) isn’t so simple. However, it will be easier to evaluate and choose the right service for managing your financial resources, if you’ve some insightful knowledge of the difference between wealth and asset management.
Hopefully, the discussion in this post can help you make a sound decision. Select the right firm and start off on the right foot, to ensure success as you work on achieving your financial goals. So, the blissful retirement you’re dreaming of having in the future can certainly come true!