Asset Management vs. Wealth Management: What is the difference?

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Both asset management and wealth management play an important role in ensuring you achieve your financial goals and needs. Though there are a few similarities between both offerings, they are two distinct services that differ in their main purpose. While asset management seeks to maximize the value of an investment portfolio over time, wealth management is a comprehensive service that aims to maximize and protect an individual’s overall financial health over the long term. It is advised that you consult with a professional financial advisor who can help you understand the differences between both asset management and wealth management, and can suggest the most suitable option for your financial requirements.

This article explores the key aspects of both asset management and wealth management along with their differences.

What is asset management?

Asset management refers to the process of growing total wealth over time through the acquisition, preservation and trade of investments that can potentially grow in value. This aim is to be achieved while maintaining an acceptable level of risk. Investments such as bonds, stocks, and mutual funds form an integral part of personal wealth with the focus being on the optimization of returns from these instruments. Thus, the primary goal of asset management is to leverage your assets to reap maximum returns.

What is the role of an asset manager?

An asset manager is a professional who identifies what investments to make, or avoid, to attain his client’s financial goals. He carries out an analysis of clients’ assets and financial situation, understands their risk tolerance and helps leverage their investments to their optimal capacity. You can choose the type of asset manager depending on the nature of assets and level of service that they provide. There are several different kinds of asset managers such as registered investment advisors (RIAs), financial advisors, investment brokers, and robo-advisors.

How does asset allocation work?

Asset allocation is an integral aspect of asset management wherein the investor’s assets are allocated among various investment instruments based on factors such as the assets' nature, the asset owners' risk-bearing capacity, and asset diversification. The risk-return scope of each asset is thoroughly studied to ensure maximized returns from the asset pool. For instance, if an investor has a high-risk tolerance, the asset manager might opt for options such as equity, real estate, cryptocurrency, and more. For a more conservative investor, the manager would invest in bonds, blue chip stocks, treasury bills, etc. The asset manager monitors the finances on a daily basis or over extended intervals, depending on the investment term and the asset.

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What is wealth management?

The terms wealth management and asset management are often used interchangeably. However, they are different concepts. Asset management is just one part of wealth management. Wealth management is a more holistic approach to managing your finances. Unlike asset management, which focuses singularly on clients’ investment portfolios, wealth management combines different financial services such as tax management, estate planning, retirement planning, investment planning, and more to preserve the client’s wealth. So, while an asset manager advises on which insurance company's stock to invest in, a wealth manager will help buy the right health insurance policy and create a foolproof estate plan.

How does wealth management work?

Wealth management has several objectives, including -- but not limited to -- wealth diversification, asset protection, estate protection, financial succession, and wealth preservation. On the other hand, asset management entails optimizing your returns and reducing risks. The strategies needed to achieve wealth management goals are based on a more fundamental and personal analysis of your financial situation. This is also where the choice becomes more defined vis a vis asset management vs. private wealth management.

What is the role of a wealth manager?

Wealth managers are always looking at the bigger picture. They will not only help you optimize your current monthly earnings but also help you plan your long-term financial future and retirement. Several financial services, such as tax planning, college fund allocation, and estate planning, fall under the ambit of wealth management. Your wealth manager will develop a blanket strategy to suit your needs. Before zeroing in on a wealth manager, you must thoroughly research the advisor’s credentials or company history. You must also ensure that your financial objectives fall under your wealth manager's area of expertise.

Wealth managers, like asset managers, accept fees in several ways. Some charge on an hourly, quarterly or annual basis while the most popular fee model used by wealth managers is based on the client’s assets under management (AUM).

To conclude

The primary difference between asset management and wealth management is that the former focuses on investments while the latter takes a much broader view of your financial needs and goals. You can opt for asset or wealth management, depending on your current financial situation. Wealth management deals with a person’s overall financial life and portfolio, whereas asset management is geared toward choosing and managing investments and focuses on risk and reward management. In both cases, you should thoroughly research your options and choose an advisor that best suits your particular needs.

Use the free advisor match service to match with vetted financial advisors that can help manage your finances and create a suitable financial plan suited to your particular needs. Answer a few questions about yourself and get matched with 1-3 financial advisors that can help you with your unique financial needs and goals.

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The blog articles on this website are provided for general educational and informational purposes only, and no content included is intended to be used as financial or legal advice.
A professional financial advisor should be consulted prior to making any investment decisions. Each person's financial situation is unique, and your advisor would be able to provide you with the financial information and advice related to your financial situation.