When it comes to the broad idea of personal finance, it’s important for everyone to have a solid foundation of financial literacy. Knowing the basics like savings, investing, and budgeting goes a long way! But if you’re making a good salary or are a high net worth person/family, you might be wondering about proper asset management vs. wealth management.
Which avenue is right for you and your financial situation? How can these help you meet your financial goals — say, the comfortable, pleasant retirement you want? What exactly IS the difference between asset management vs. wealth management?
Let’s start with the basics.
What is asset management?
According to The Thinking Ahead Institute by Willis Towers Watson, in 2019 the top 500 largest asset managers worldwide oversaw $104.4 trillion worth of assets.
So basically, asset management is big business.
Starting from the very beginning (just in case!) assets refer to resources with economic value. Specifically/especially those that can be converted to cash like real estate, automobiles, investments such as stocks and bonds, materials, inventories, etc.
Asset management, therefore, is a service provided by a financial services institution (eg. an investment bank) or individual — and is exactly how it sounds. Asset managers configure their client’s portfolios to best meet their identified needs and goals, centering the client’s unique situation, preferences, and risk tolerance. While “assets” does broadly refer to a person’s complete financial holdings, asset managers are primarily focused on investments — stocks, bonds, mutual funds, and ETFs.
At its core, asset management is about making the best investment possible for clients, with a strong focus on growth. Standard services offered by asset managers include:
- Data analysis
- Risk assessment
- Portfolio design
- Re-balancing of investments
- Strategies for minimizing tax
- Asset distribution
Keep in mind that firms or managers do typically set investment minimums for asset management as a service.
[FYI: There’s a lot of industry jargon out there, especially when asset and wealth management is a new topic you’re exploring. Review our glossary if you need a handle on the vocabulary!]
What is wealth management?
Wealth management is based on the idea that high net-worth individuals or families require a more extensive range of services than those offered by standard financial advisors. Those with a high net worth benefit from a personalized, customizable, all-encompassing approach from a trusted wealth manager.
As a matter of fact, studies have shown that clients significantly outperform when using a wealth manager. One 2019 study found that clients with a strong wealth manager receive on average a 3% increase in the value of their portfolios annually.
While still considered a subset of financial advisors, wealth managers offer an enhanced range of services to their high net-worth clients. Wealth management services are considerably more hands-on and comprehensive.
What are the various components to wealth management?
Wealth managers may offer services including, but not limited to:
- Investment management and advice
- Retirement planning
- Legal and/or estate planning
- Accounting and tax services
- Philanthropic planning
Is asset management part of wealth management?
Yes! Wealth management encompasses a client’s overall financial situation. Given that assets are — as defined above — resources with economic value, wealth managers certainly play an essential role in managing the assets of their clients. It’s just one part of the bigger picture.
What are main the difference between asset management and wealth management?
Broadly speaking, when you want help achieving your financial goals, you seek help from a financial advisor. Both asset and wealth management fall under this umbrella as types of financial advisors.
When it comes to asset management vs. wealth management, the latter offers a more holistic look at a person or family’s overall financial situation, with long-term wealth protection in mind. Asset management is an option, in some way, for most investors. Wealth management, meanwhile, is specifically for high net-worth individuals and/or families.
What is considered high net worth?
While a financial advisor can help you grow your wealth, a wealth manager can step in once you’ve achieved a high net worth. And for those who reach this level of wealth, it’s all about preserving and protecting it for the future.
Sure, the idea of “wealth” means different things to different people. But as a financial industry classification, however, high net-worth individuals are those with around $1 million and over in liquid financial assets. This is the most commonly-cited figure.
“The most commonly quoted figure for membership in the high-net-worth club is around $1 million in liquid financial assets. An investor with less than $1 million but more than $100,000 is considered to be “affluent” or perhaps “sub-HNWI.” The upper end of HNWI is around $5 million, at which point the client is then referred to as “very HNWI.” More than $30 million in wealth classifies a person as “ultra HNWI.”“
For further reference, Wealth Management Canada’s services are open to all investors with portfolios starting at $500,000.
How to find wealth management and asset management
Two words: Careful research.
Many investors have “inherited” their wealth or asset manager from their parents. Perhaps you’ve had a recommendation from a friend. Ultimately, you have to keep your own financial situation and needs in mind. You could be at a completely different life stage from your parents, or have a different set of values from your well-meaning friend. It’s important to ask questions (see below!) and
A service like Wealth Management Canada can help you start your search. After a short questionnaire, WMC experts review your information and make a tailored shortlist of recommended managers. From there, you can meet with these managers, and ask plenty of questions (see below).
Tip: Don’t be afraid to ask potential wealth managers for client reviews they’ve received. While your financial situation is unique, it can be helpful to hear about the experiences of others.
What are good qualities of a wealth management firm?
When looking for a wealth manager or firm, look for the four Ps:
- People (What is the quality of the people in charge of portfolio management?)
- Philosophy (Do they believe in and follow their investment philosophy even in times of underperformance?)
- Process (How do they execute their investment philosophy?)
- Performance (What is the end result of the previous two?)
Think of these points like a jigsaw puzzle. To get a complete picture of how good a manager or firm really is, these four Ps need to fit together. For a more in-depth look, check out our blog post on researching and evaluating a potential wealth manager.
And, of course, as we say above, a wealth or asset manager needs to work for and with YOU, and your unique financial situation.
We’ve also compiled a great tip sheet to help you find a wealth manager, full of important questions to keep in mind when going through the process. Both of these are solid references to keep bookmarked since it’s important to regularly review your wealth manager/firm.