Whether you’re just getting started on your financial journey or have already made significant progress, a financial professional can help. There are many different types of professionals who manage clients’ investments, help with cash flow and debt management, provide tax and estate planning advice, and more.
If you’re considering hiring a financial professional, you’ll find there are many to choose from. Two of the most common are asset managers and wealth managers. And while they might sound interchangeable, there are some important differences that can help you decide between the two.
In this article, we’ll break down the key characteristics of both asset and wealth management, what services they include, the clients they generally serve, and how to decide which is right for you.
Asset Management
Wealth Management
Clients
Individuals with simpler financial situations
Individuals with more complex financial situations
Focus
Narrow focus on managing a client’s assets
Broad focus on someone’s entire financial picture
Services
Risk assessment, asset allocation, tax minimization, investment monitoring, portfolio rebalancing
Investment management, cash flow and debt management, retirement planning, education planning, insurance planning, estate planning
Compensation Model
Commission or fee-based
Usually fee-based
Fiduciary Status
May or may not be a fiduciary
More likely to be a fiduciary
What Is Asset Management?
Asset management is the practice of managing investments, including stocks, bonds, mutual funds, and other investments. Asset managers generally design their clients’ portfolios, manage them on an ongoing basis, and provide investment advice.
Clients
An asset manager can serve all sorts of clients, but in general, is likely to work with individuals who have a relatively simple financial situation and simply want someone to manage their investments. In many cases, it could be someone who has been fully managing their own finances until now and is hiring a financial professional for the first time.
Services
When an asset manager works with a client, they generally start by getting an idea of that person’s financial goals and risk tolerance. Using that information, the asset manager can design a portfolio that meets that person’s needs. Some of the specific services that are likely to be included in asset management include:
Risk assessment
Asset allocation
Tax minimization
Investment monitoring
Portfolio rebalancing
What Is Wealth Management?
Wealth management takes a big-picture approach to financial advising. Rather than focusing on just one area of someone’s finances as an asset manager does, a wealth manager provides a more holistic service that touches each area of someone’s financial picture.
Clients
While an asset manager is likely to work with clients that have a simpler financial picture, wealth managers tend to work with those with greater needs. Someone who hires a wealth manager is likely to have a more complex financial picture. Rather than solely needing help managing their investments, someone who needs wealth management may also need a comprehensive financial plan that includes tax planning, retirement planning, estate planning, and more.
An example of someone who may hire a wealth manager is one who is further along in their career, has more substantial assets, and has a spouse and/or children to provide for. They might own a business or be going through a major life change that requires a financial overhaul.
Services
When a wealth manager works with a new client, they’re likely to sit down with that person and learn everything they can about their financial picture. In addition to learning about that person’s investment goals, they are also likely to ask about their monthly and annual cash flow, their current insurance policies, existing retirement accounts, and more.
Based on the information the wealth manager collects, they will create a comprehensive financial plan for their client. Included in that are the following services:
Investment management
Cash flow and debt management
Retirement planning
Education planning
Insurance planning
Estate planning
A wealth manager plays a more significant role in a client’s overall finances than an asset manager does. That may also include coordinating with other financial professionals someone has hired, including an accountant, estate planning attorney, insurance agent, and more.
It’s important to note that while asset management isn’t the only job of a wealth manager, it can be one of the tasks they take on. Many wealth managers still craft their client’s asset allocation and manage their investments on an ongoing basis.
Which is Right For You?
Both asset managers and wealth managers serve a critical role for their clients, and choosing the best one for you depends on your financial situation. In general, an asset manager is best for someone with a simpler financial picture who only needs help managing their investments, at least for the time being. On the other hand, a wealth manager is best for someone with a more complex financial situation who needs a more holistic approach.
When choosing between asset vs wealth management — and when choosing the right professional to work with — there are other things to consider as well. In most cases, it’s best to work with a fiduciary, which is a professional with a legal and ethical responsibility to act in your best interests. Both asset managers and wealth managers can be fiduciaries, but wealth managers are more likely to be.
Next, it’s important to consider the compensation model of the professional you’re hiring. Some asset managers work on commission, meaning they are paid when they sell you certain financial products. On the other hand, most wealth managers and many asset managers charge a fee for their services, either on an hourly basis, as a flat fee, or as a percentage of assets under management. While this compensation model requires a larger out-of-pocket cost of the client, it helps to avoid any conflicts of interest.
Finally, make sure you feel comfortable with the professional you work with. Ultimately, this person will have to know the ins and outs of your finances and will work closely with you to help you meet your financial goals. It’s important to make sure it’s a good fit.
If you’re considering hiring a wealth manager, connect with a Personal Capital fiduciary advisor who can help manage your investment portfolio while advising you on other areas of your personal finances.
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Author is not a client of Personal Capital Advisors Corporation and is compensated as a freelance writer.
