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understanding asset management vs wealth management

Asset Management vs Wealth Management – Planning Your Future

Marques Cormier | August 3, 2020

To know the difference between asset management vs wealth management, you need to understand that asset managers and wealth managers fall under the same umbrella of financial services offered from a financial management firm and that they can be found to work in conjunction together. While there are plenty of firms that choose to specialize in either one or the other, it is not uncommon for an RIA (Registered Investment Advisor) firm to seek out asset management services for their clients. For example, asset managers focus primarily on utilizing their expertise and tools to assess the economy and analyze individual companies to improve their probability of success when managing a client’s investment portfolio. RIA firms do focus on investment opportunities and management, but they also help clients focus on other elements of financial planning that we will discuss below.

A financial advisor or wealth manager for an RIA will know not only your cash flow, but where that money is going, how quickly money is being spent, and how much. As an individual, company, government entity, or family grows in wealth, it can become more difficult to manage multiple streams of income coming in from financial resources as well as outgoing expenses. After doing the proper research, you may conclude that asset management is all you need, but most benefit from having a wealth manager to guide them on what sort of asset manager you need and how to allocate between them. Read on to understand the difference between asset management vs wealth management.

Wealth Management Services

A wealth manager may offer a vast array of services depending on what your financial obligations require. Anything from basic budgeting and debt management to tax mitigation strategies and estate planning can be handled by a wealth manager under the RIA umbrella. Here is a list of the most common areas in which a wealth manager may organize your finances and expenses:

  • Retirement planning
  • Education planning
  • Estate planning
  • Tax planning
  • Insurance
  • Legacy planning
  • Charitable giving

At first glance and without proper guidance, one may find it difficult to find the right wealth manager and/or asset manager to help with finances. However, a closer look at how you are spending your money through the lens of an expert is an investment rather than an expense. 

Asset Management Services

An asset manager is responsible for directing all or part of a client’s investment portfolio. They specialize in all areas of the stock market or specifically work within certain asset classes or sectors based on their skillset and experience. The overall goal of an asset manager is to understand what investments to make or avoid to either provide growth or income while mitigating risk in the process.

 A lot of asset managers work with a client’s wealth manager to help determine how a client’s portfolio should be invested based on objective, risk tolerance and time horizon. There is more that goes into asset management than just simple asset allocation and investing assets. You may already have a good idea of what your financial portfolio consists of; but consider these questions:

  •   Do you know how to optimize these assets to its greatest potential?
  •   Do you understand how your investments perform during different economic cycles?
  •   Do you know how an individual company’s earnings report will affect your position with that company?

This is where having an experienced asset manager can really help take your portfolio to the next level. Some roles of an asset manager can include but are not limited to:

  • Security Selection
  • Overall Portfolio Creation
  • Periodic Portfolio Rebalancing
  • Macro and Micro Analytics
  • Cash Management Within Portfolio
  • Fundamental and Technical Analysis

What is investment portfolio management?

An investment portfolio is a collection of assets that can hold stocks, bonds, commodities, currencies and other alternative investments like real estate or private equity.  An asset manager, usually with the direction of the client’s wealth manager, is responsible for investing and overseeing assets under management, using expertise to add value through an investment selection process that is in line with the current portfolio strategy. The wealth manager will be extremely involved with overall portfolio strategy but may outsource the ongoing investment management to one or multiple asset managers based on the construction of the portfolio.

The next thing you may be questioning is how services such as asset management and wealth management are billed to the client. There are different ways a firm may choose to go about this, but a common path is to either charge the client predetermined fee-based services or have additional services set up as hourly-based.

How do wealth management fees work?

A management fee is a yearly fixed percentage that is usually billed quarterly based on the value of the account at the quarter’s end. The fixed percentage is usually determined by the value of the account. As the account increases, some standard fee structures include incentive breakpoints, meaning that the more money that is being managed, the lower the overall fees will be. There may be other fees for one-off services that your firm charges for, so it is always important to ask questions to understand all the fees prior to hiring an advisor so there is full transparency on both sides of the table.

How one pays for a service will be up to the wealth management company to decide, but there are a few main ways of going about it. You may be able to consult with your financial advisor about your preferred payment method based on what is commonly offered to clients:

Percentage-based fees

This is by far the most common option for wealth management services payment. This entails the management company taking a percentage of all assets managed by said company. Most companies will allow a breakpoint, stating that the more money you entrust a financial advisor with, the lesser the percentage. 

Hourly rates

While the least common method of payment, paying for hourly services may be right for you if you are looking for help with a short-term project. While most work on your project will remain percentage-based, there are additional services that can be paid for based on hourly charges. This can include:

  • Financial planning
  • Estate planning
  • Tax mitigation
  • Debt Management
  • Life insurance planning
  • Business retirement planning
  • 401k employer planning
  • Alternative investment strategies
  • & More

Be sure to check with your financial planner to see if your plan already covers these aforementioned services, as an additional hourly rate may not apply depending on your contract. As with all payment options, be sure to discuss with your financial advisor to come up with a solution that fits your needs.

Is Your Advisor Firm Registered as Broker Dealer, RIA, or both?

An asset manager can either be affiliated with a broker dealer, an RIA (Registered Investment Advisor) or in some cases they can be dual-registered as both. Although most fee-based wealth managers nowadays fall solely under the RIA umbrella, it is not uncommon to see wealth managers affiliated with broker-dealers as well. As a potential new client it is very important to understand what questions to ask, how your advisor is registered and what that means to you.

Now that you have a better understanding of the difference between asset management vs wealth management, your next step should be to decide which service fits you best, if not both. For most clients it is not deciding which large cap stock asset manager one should choose; rather, which wealth manager will help them determine how much money should be large cap stocks in the first place vs International Stocks vs Bonds vs Real Estate. As they say, time is money; and in the case of wealth and asset management, you could be saving yourself a bundle by obtaining guidance from professional financial advisors and gaining more than you would otherwise.

Author: Marques Cormier Marques Cormier has served as the director of financial services for ZT Corporate as well as the Chief Compliance Office for ZT Wealth Advisory. In his current role, he provides financial planning and investment management guidance to all of ZT’s clients. In addition to his role as a financial planner he also works as an Internal Plan Administer for all the 401K plans for various entities within ZT Corporate.