There is quite a bit of confusion around the difference between wealth management and asset management. Too many people assuming that they are the same thing. In order to accurately determine which type of management you need, it is vital that you understand the differences. One must compare and contrast between these two types of financial services.
Wealth and asset management have some similarities, but they represent different approaches to financial growth. Also they have very different priorities and the types of services you can expect. A good start to understanding the key differences between these financial services begins with a quick review of some financial terminology.
What Are Assets?
The term “assets” refers to property that has value which can be converted into cash. This property is owned by a person, a family, or a company. Which is capable of generating revenue. There is a wide variety of assets that a person or family can possess. Your assets may include property and land, including structures that may be attached. Investments are assets, and may include life insurance policies, pensions, retirement plans, bonds, stocks, and annuities. Checking and savings accounts, money market accounts, mutual funds, treasury bills, CDs, and physical cash are also included. Your personal property, vehicles, collectibles, boats, aircraft, or jewelry are additionally considered assets.
These are all examples of tangible assets, but there are also intangible assets. Intangible assets can be much harder to assign a value. This is because they do not have physical substance, but they still have value. Intangible assets may take the form of copyrights, patents, trademarks, franchises, and, in some instances, computer-based assets such as software. However, these are all considered assets.
Wealth and assets are not the same, but they are very closely related. The simplest definition of wealth is the total market value of your assets minus debts. Those assets include both tangible and intangible assets. This reason is because they both contribute to the value that makes up your wealth. This definition of wealth implies that assets are actually a subdivision of wealth. Tying in with the difference between asset management and wealth management, as we will see.
Asset management includes CDs, stocks, bonds, property, annuities, pensions, mutual funds, patents, and money market accounts. The goal of asset management is to increase the value of your assets, both tangible and intangible. The primary focus of all strategies and decisions is your assets. Any actions or strategies undertaken with regard to your assets will not directly address other financial issues such as estate planning, tax impact, accounting, or philanthropic activities.
An asset manager helps you determine the best investments for your financial situation and makes recommendations about asset allocation. They will help you determine what percentage of your investments should be in growth products. What percentage should be in fixed-income products, or what types and classes of investments are best suited. The focus is on assets and investments. In short, asset management deals with wisely investing in a variety of assets to grow your wealth.
The goal of wealth management is to increase the value of your wealth through a broader perspective than asset management. It actually includes several aspects of asset management. Those who work in wealth management provide investment and financial advice. Consisting of tax planning, real estate and investment management, estate planning, and accounting. It is not uncommon for wealth management services to also include advice on charity and philanthropic aspects of wealth. Some wealth management companies may also provide banking services.
Wealth management services are usually provided by a team of people with expertise in differing areas such as accounting, tax law, and finance. They work in tandem to develop a robust, long term strategy for increasing and maintaining your wealth. Ultimately, wealth management provides portfolio management and financial planning, which aims to grow your wealth in the short, and long term projects.
Differences Between Asset Management and Wealth Management
Both asset and wealth management focus on goals such as increasing investment income. A strong focus on growing wealth, maximizing returns, and increasing profitability. However, they are still quite different.
Short-term Versus Long-term Planning
Asset planning looks at what assets are going to be the most profitable for your current situation. Helping you to develop a wise strategy of financial investment and diversification. Wealth management takes into account more than just your assets and involves concern for long-term value as well.
Wealth management can include insurance, retirement planning, estate planning, charitable giving, tax law, legacy planning, and education planning. A wealth manager may consider the impact of taxes on your wealth or assist in selecting insurance that can best protect your existing investments and assets. They may also work with multi-generational estate issues or assist with accounting. Wealth management teams take a much more holistic approach to growing and protecting your overall wealth than an asset manager does.
Varied Skill Sets
Wealth managers may also work with your agents to better understand your needs and challenges. Asset managers rarely do this, mainly because their work primarily focuses on investments. In addition, wealth management teams are far more varied in their skill sets. Often including specialists in accounting, law, philanthropy, taxes, or estate planning. The team will likely include someone with a specialization in asset management. Asset managers do not typically have such a wide skill set.
Payment and Cost
Wealth management is primarily used by high net worth individuals or families in need of a more diverse level of service. Compared to that which is provided through asset management. Asset management is more focused than wealth management. It does not include tax planning, estate planning, or legal advice. Because the services associated with asset management are so limited compared to those provided with wealth management. All in all asset management services cost significantly less.
Firms that specialize in asset management are usually paid by commission for product sales or a percentage-based fee for assets under management. Wealth management firms, almost exclusively use retainer fees or a model based on fees for assets under management. In some cases, wealth managers may charge an hourly or flat fee. The cost of hiring a wealth management team is significantly higher because of the additional services and skills that they provide.
Regulatory Agencies Involved
Another major difference lies in the type of regulatory agencies involved. Asset management firms are registered either with (or as) broker dealers and are answerable to the Financial Industry Regulatory Agency (FINRA). As such, the FINRA holds them to a “suitability” legal standard of care. Wealth management companies, on the other hand, are usually registered with the Securities and Exchange Commission (SEC). And are held to a higher fiduciary standard of care than an asset management company.
The Critical Difference
If you are looking for help with investing or diversifying your assets, then an asset manager is what you need. Long term goals for your wealth may include your children’s education, retirement, and charitable giving. As well as accounting, or tax planning, you would require the services of a wealth manager. Wealth management looks at the “big picture”. Including your current wealth, and protection for the future. Encompassing every aspect of your wealth, including the risks to it, and results in a very personalized long term strategy.
At we provide several different financial services, including family office, tax preparation, and forensic accounting. We do not provide investment advice or sell investment products. Our focus is wealth management than asset management. It also means that our staff members are independent and free of conflicts when providing financial services.
Our family business office provides accounting, tax services, and fee only financial planning. You can take advantage of bookkeeping, bill paying, and preparation of financial statements and special reports. Our skilled team has broad and deep capabilities to handle a wide variety of financial situations. FBO Services will help you organize, grow, and protect your wealth. We offer the highest quality financial services with unparalleled discretion and professionalism.
Contact us today for more information about our accounting, financial, and tax services. Take the time to find out what FBO Services can offer you when it comes to the wealth you and your family have sacrificed so much to make possible.