Asset management vs. wealth management: What’s the difference?
Editorial staff, J.P. Morgan Wealth Management
- Asset management seeks to leverage an individual’s investments so that the overall returns are maximized.
- Wealth management’s focus is more holistic as it seeks to enhance and protect an individual’s overall financial health over the long term.
- Asset management tends to focus on proprietary expertise to manage a clients’ investable assets.
- Wealth management teams include a wide variety of experts in fields outside of traditional investing, such as lawyers and accountants.
Nowadays, the assistance of a qualified financial professional is quite helpful, if not a necessity, to achieve one’s financial goals. Both asset management and wealth management strive to provide this service, though there are differences between the two. We break it down for you.
Asset management | Wealth management |
|---|---|
Scope | |
Asset management primarily focuses on the management of your investments, such as stocks, bonds and other financial instruments. | Wealth management typically accounts for your overall financial situation, addressing more than just investments by also considering things like tax planning, estate planning, retirement planning and more. |
Goal | |
Asset management looks to maximize the returns on your investments through effective management and diversification of your portfolio using strategies tailored to your risk profile. | Wealth management focuses on improving and securing your overall wealth over the long term. This includes not just enhancing investments, but other aspects of your financial situation as well. |
Fiduciary duties | |
Asset managers’ fiduciary responsibilities can vary. While many are dedicated to their client’s interests alone, some may balance those interests with considerations for their firm as well. | Wealth managers are generally required to act solely in the client’s best interest. This fiduciary responsibility is considered a defining feature of wealth management. |
Target clients | |
Asset management is oriented toward a diverse range of clients, including individuals with significant assets and institutional clients such as pension funds, endowments and corporations. | Wealth management typically serves individuals or families with higher net worth's. Many wealth management services have minimum asset levels. |
Payment structure | |
Asset managers are typically paid based on a commission structure or fees that are a percentage of assets under management (AUM). | Wealth managers may be paid a flat fee, a fee based on the percentage of AUM or a combination of both. |
What is asset management?
Generally speaking, asset management can refer to the oversight of any possession that an individual has that is of value to them. But in the financial arena, this term is used mainly to describe the management of an individual’s investments, such as stocks, bonds and any other instrument that is used to grow their net worth.
The goal of asset management is to maximize the returns of an individual’s investments. In other words, your money is put to “work” in as efficient a manner as possible so that it makes you more money.
Sometimes, asset management and investment management are used interchangeably, though the former is a bit more hands-on and targets individuals with a higher degree of affluence while the latter tends to be more specific and is geared toward any investor. In other words, the asset manager prefers to be directing all of a client’s investable assets while an investment manager might be in charge of funds dedicated to a specific asset class, like stocks.
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What does an asset manager do?
The person or entity tasked with achieving the goal of maximizing the client’s returns is called the asset manager. One of the key ways they do this is by a process called asset allocation. As the term implies, this involves placing the client’s total investable assets among different asset classes. A simple allocation model is one where these assets are divided among stocks and bonds using percentages that fit the client’s risk threshold and financial goals.
For example, if a client has indicated that they are risk averse, then the asset manager might weigh the allocation mix more to bonds (which are generally safer investments), but if the investor is more oriented toward increasing the value of their asset base, then that mix might skew more to stocks (which often have higher risk, but the potential for higher reward). Typically, an asset manager will rely on the analysis of historical data to make projections of the risk-return potential of the assets that would be best suited to the investor’s risk profile.
Asset managers are often registered as broker-dealers and are paid based on a commission structure or fees that are a percentage of assets under management (AUM). Clients with higher AUM will usually receive a lower fee structure.
What is wealth management?
While the focus of asset management is on the investable assets of a client, wealth management’s focus is more holistic. In other words, it seeks to address the individual’s overall financial situation and provide strategies to enhancing and protecting their wealth over the long term. A simple way to differentiate between the two would be to state that asset management is a subset of wealth management.
For example, a wealth management client can expect advice on what types of insurance might be most appropriate for them or how their estates are structured or how to set up a college fund for their children.
What does a wealth manager do?
A wealth manager melds the fields of asset management and financial planning. They should be qualified, or find entities who are qualified, to provide clients with services that include, among others, tax planning, estate planning and retirement planning.
Given the wide scope, most wealth management teams include a variety of specialists in fields outside of traditional investing. Lawyers might be needed to formulate an effective estate planning strategy while accountants would be beneficial in advising on tax-related matters.
Wealth managers are usually registered as investment advisor representatives and are paid either through a flat fee, a fee based on the percentage of AUM or a combination.
Frequently asked questions asset versus wealth management
Financial assets, or securities, are financial instruments that hold monetary value, such as stocks and bonds. Financial assets can be bought and sold in a financial market like the New York Stock Exchange. This is in contrast to real assets like real estate.
The term asset management typically applies to institutions, while wealth management applies to people. Asset managers optimize investments for their institutions, for example an investment bank. Wealth managers typically plan and execute the wealth portfolio of high-net-worth individuals and families.
Wealth managers and financial advisors differ in the scope of their offer. A wealth manager typically manages the financial portfolio of one or more high-net-worth individual or family clients, as mentioned previously. A financial advisor typically advises clients on achieving a specific financial goal, commonly retirement.
Active asset managers actively buy and sell securities with the intent to outperform a financial benchmark, such as the S&P 500 index. The opposite case is passive asset management, which seeks to model a given index and match its performance. Value investing, for example, is one of many styles of active asset management.
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Editorial staff, J.P. Morgan Wealth Management
