Asset management and wealth management are services that help individuals manage their finances and investments. While an asset manager focuses on helping individuals grow their wealth by taking care of their investments, a wealth manager offers high-net-worth (HNIs) individuals a more holistic financial planning approach by managing their investments, taxes, estate planning, and more. Since both these services aim to grow and protect one’s wealth, it can be easy to confuse the two.
So let’s understand the difference between asset management and wealth management, and how you can decide which between asset management vs wealth management would suit your needs best.
Difference Between Asset Management and Wealth Management
Here is an overview of the difference between asset management and wealth management:
| Asset Management | Wealth Management |
| Asset management mainly focuses on handling your investments such as mutual funds, stocks, bonds, and other securities. | Wealth management is broader in scope. It focuses on not only handling investments but also managing different aspects of financial planning. |
| The main goal of asset management is to maximise how much returns one can earn on investments while staying aligned with their financial goals, investment horizon, and risk profile. | The main goal of wealth management is to provide a holistic approach to managing an individual’s entire financial life. Wealth managers create a strategy that aligns all aspects of a client’s financial situation with their long-term goals. |
| Anyone seeking to grow their wealth to realise their financial dream can hire an asset manager, from individuals to financial institutions. | Wealth managers generally only provide their services to high net worth individuals and families. |
| Asset managers provide services such as investment risk management, financial modelling and analytics, fundamental analysis of securities, asset allocation strategies, and portfolio management services. | Services provided by wealth managers include financial planning, tax planning, investment management, estate planning, retirement planning, and others. |
| Some types of asset management services are financial advisors, investment advisors, robo advisors, registered investment advisors (RIAs), and investment brokers. | Types of wealth managers include Certified Private Wealth Advisors (CPWAs), Certified Financial Planners (CFPs), and Family Office Advisors. |
| The cost of hiring asset managers isn’t very high. They generally charge a small fee that is expressed as a percentage of the assets under management (AUM) or the value of one’s portfolio. | Since wealth managers provide a variety of services, the cost of hiring one can be high. |
| The fiduciary duties of an asset manager can vary. Fiduciary duty means that the asset manager is legally and ethically required to act in the best interests of their clients. If the asset manager possesses a valid certification from a reputed institution, like a registered investment advisor, they are likely to put their client’s interests first. | Wealth managers are generally fiduciaries, so they are bound to prioritise their clients’ interests above their own. They offer unbiased investment advice and have a transparent fee structure. |
So the main asset management vs wealth management difference is that asset management focuses specifically on the investment and growth of an individual’s assets through personalised portfolio management and investment services, while wealth management includes a variety of services such as financial planning, estate planning, tax planning, and holistic financial guidance tailored to a high net worth individual’s or family’s long-term goals.
Should I Choose Asset Management or Wealth Management?
Now that you know the difference between asset management and wealth management, let’s take a look at what asset and wealth managers actually do. Understanding their services will give you a clearer idea of which approach aligns best with your financial situation and goals.
Asset Managers:
1. Financial Analytics
Asset managers analyse market trends, economic data, and performance metrics to make sound investment decisions. They also track the performance of your portfolio and suggest new opportunities for lucrative investments.
2. Risk Management
WIth proper risk management, asset managers can minimise the risk associated with investing. They analyse your risk profile and make sure that your portfolio matches it. Managers use techniques such as diversification and hedging to manage risk.
3. Financial Modelling
Financial modelling means using statistical models to predict how an asset will perform. They use these models to make scenarios, evaluate investment opportunities, and identify risks.
4. Asset Allocation
This refers to the percentage of a portfolio allocated to different asset classes, such as stocks, bonds, real estate, gold, and mutual funds. Asset managers distribute investments across these different asset classes to optimise returns and minimise risk. For example, an investor with high risk tolerance will allocate a bigger portion of their portfolio to stocks, while a more conservative investor would prefer a higher allocation to bonds to reduce risk and protect capital.
5. Fundamental Analysis
This process involves assessing a company’s financial health and intrinsic value through a detailed analysis. Managers invest in companies that show high growth potential.
6. Portfolio Management
Asset managers regularly monitor and adjust investment portfolios to make sure it stays aligned with their client’s financial goals and risk tolerance.
Wealth Managers:
1. Financial Planning
Financial plans take into account one’s financial situation, that is, income, expenses, savings, investments, and debt, as well as their financial goals and risk tolerance. Wealth managers assess these factors and develop a comprehensive financial plan to help their clients achieve their long-term goals.
2. Tax Planning
With tax planning, one can legally reduce their tax liabilities. This is done by taking advantage of the various deductions and exemptions allowed in the Income Tax Act. Wealth managers make strategies to minimise tax liabilities and help their clients save more of their money.
3. Managing Investments
Wealth managers also manage their clients’ assets, which includes all the services provided by an asset manager.
4. Estate Planning
Also referred to as succession or legacy planning, this process involves arranging how one’s assets will be distributed and managed after one passes away. Wealth managers create wills, trusts, and other strategies to make sure that their client’s assets are transferred smoothly and according to their wishes.
The choice between asset management vs wealth management depends on your financial goals. If you want personalised and expert guidance on getting the most out of your investments, asset management would be the right choice for you. On the other hand, if you possess a significant investible surplus and are looking for a more comprehensive service that covers all aspects of your financial life, wealth management would be more suitable for you.
FAQs
What are financial assets?
Financial assets are liquid instruments that hold a certain monetary value. Some examples of financial assets are stocks, fixed deposits, mutual funds, bonds, and Real Estate Investment Trusts (REITs). They are different from tangible assets like real estate and gold, as they don’t need to be physically held, and can be traded and managed more easily and efficiently.
What is active asset management?
Active asset management is a style of investing where the asset, fund, or portfolio managers take a hands-on approach to earn returns that outperform an investment index, like Nifty 50. They perform extensive market and stock research to make specific investments to profit from short-term price changes and market gaps to get better returns than passive management, which usually just follows a market index.
