What is asset management?
Asset or investment management focuses primarily on maintaining your portfolio, according to Jaime Eckels, a CFP (certified financial planner) and partner at Plante Moran Financial Advisors.
“Asset management is really about the portfolio and what’s in it,” Eckels says. “How much of the portfolio is stocks and bonds? Do you add real estate exposure with a real estate investment trust? Portfolio management is also about when to buy and sell.”
Additionally, asset management heavily emphasizes returns, although portfolio results tend to be mixed, says Michael Finke, Ph.D., a CFP and professor of wealth management at the American College of Financial Services.
“The traditional consumer looking for an asset manager is looking for someone to help them pick investments,” Finke says. “While asset management can be part of an overall wealth management strategy, just relying on picking investments doesn’t add a lot of value to a client hoping for an overall strategy to build and effectively manage their wealth.”
What is wealth management?
Rather than focusing solely on portfolio performance, wealth management offers a more holistic approach to building and managing wealth.
“Wealth management recognizes that each household has its unique characteristics and different goals for how to use that wealth,” Finke says. “It’s about helping clients identify their values and putting together a plan that takes into account taxes, education savings, charitable giving, estate planning and other important aspects of their financial life.”
Eckels adds that wealth management is about using your assets to paint a more comprehensive financial picture.
“Wealth management is about more than returns,” Eckels says. “Instead of just looking at maximizing portfolio performance, you’re also figuring out how your assets can help you send the kids to school and retire comfortably, while getting help with tax optimization strategies.”
Key differences between asset management and wealth management
Both Eckels and Finke say that asset management falls under the umbrella of wealth management.
“Asset management has a narrow focus, and it’s a piece of the broad wealth management puzzle,” Eckels says. “A wealth manager can help you with portfolio management as they provide planning services.”
Finke says that, overall, the financial professional industry is shifting toward an emphasis on wealth management.
“Managing investments has really become commoditized. You can use a robo advisor to put together an internationally diversified and automatically managed portfolio for less than 10 basis points across the board,” or 0.10 percentage points, Finke notes. “The real value of wealth management is in the strategy that goes into building a comprehensive financial plan and then helping the client manage the assets so they can reach their goals.”
Which service is right for you?
To decide whether asset management or wealth management makes sense for you, start by reviewing your objectives.
“If you have a plan and you’re comfortable with how you’re handling the rest of your finances, and you’re looking for someone to manage your portfolio only, an asset manager might make sense,” Eckels says. “However, if you need more guidance as well as other services, a wealth manager might be a good choice.”
Finke adds that a CFP designation is a good credential to look for. However, he also suggests looking for someone with credentials that indicate a knowledge of planning and potentially additional education tailored to wealth management.
“Don’t fall into the trap of [focusing too much on] whether you want a financial advisor who can tell you whether Tesla is a good stock,” Finke continues. “The research shows the real value comes from having an advisor who understands your goals and has the ability, knowledge and experience to help you reach them.”
Finally, Eckels recommends understanding what services you’re getting and whether they make sense for the price you’re paying. When choosing a financial advisor, it’s important to set expectations so you get a good value.
For example, some asset managers charge based on the number of transactions they complete on your behalf, or they might receive commissions for buying certain funds for your portfolio. That doesn’t mean that your portfolio won’t see good returns, Eckels says, but it does raise questions about conflicts of interest.
“Understand the services offered and the payment structure. Many wealth managers base their fees on assets under management [AUM], especially if they are helping you manage your portfolio,” Eckels says. “However, you often get access to planning services, including a team that can help with estate, tax, charitable giving and education planning on top of financial planning and asset management when you choose a wealth manager that uses an AUM model. Some asset managers use an AUM model, but all you get is portfolio management and no other services.”
FAQ
Can I use both asset and wealth management services simultaneously?
Yes, asset management is considered a facet of wealth management. If you have a wealth manager, you likely also have asset management services included.
Are asset managers held to fiduciary standards?
Not always. Some asset managers are only required to recommend products and services that are suitable for a client, even if they aren’t the best possible. A fiduciary financial advisor is required to act in your best interest and must disclose conflicts of interest.
How do fee structures differ between asset and wealth managers?
Like most financial advisors and professionals, there are different fee structures that both asset and wealth managers can use. Many asset and wealth managers use an AUM model, but there might be other structures. Asset managers in particular might integrate a transaction model or commission model into their pay structure. Some asset managers receive salaries and bonuses based on portfolio performance.
What qualifications should I look for in a financial advisor?
Consider looking for someone who has extensive experience and education in the specific financial areas you need help with. Find out what characteristics other clients have and look for a financial advisor who helps people in similar situations.
How do asset and wealth management services integrate with tax and estate planning?
Wealth managers are more likely to consider the tax and estate planning implications of the assets held and the types of accounts used. Asset managers are generally more focused on generating returns than on tax implications or estate planning services.
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