Differences between Asset Management and Wealth Management

Prabhat Nigam

10 Sep, 2022

Confusion prevails between the two processes or services of asset management and wealth management because of the nature of financial services offered by them. However, there exists a significant difference between the two processes in terms of their meaning, objectives, scope of their activities, legal responsibility in the execution of the two processes. This piece of writing discusses the meaning and the major differences that exist between asset management and wealth management.  

What Is Asset Management?  

The process of managing an individual’s investments in the form of stocks, bonds or any other kind of instrument in order to grow their net worth is called asset management. The goal of asset management is to maximize the returns on the investments made by an individual. In other words, the money of the client needs to be put in an efficient manner so that the money invested makes even more money. Asset management caters to a class which is at the higher degree of affluence and is not limited to any specific class of financial assets but caters to all the client’s financial investible assets.

In the process of asset management, the asset manager determines investment of the client’s assets based on the financial situation of the client and then offers an investment strategy in order to maximize the returns of the client by indulging in the process of asset allocation. In asset allocation, the asset manager divides the investable assets among different asset classes. For example what percentage of the portfolio should comprise of products like stocks, fixed income products like bonds etc.     

What Is Wealth Management?  

The scheme of investment which is adopted by high net worth individuals to preserve their wealth and also to accumulate it further is called Wealth Management. Wealth management involves active participation by such individuals to identify and take advantage of the profit making opportunities. This kind of management of wealth is meant for those individuals who have accumulated significant amount of wealth either through business or through inheritance.

Wealth management involves appointment of wealth managers by such wealthy people in order to preserve and accumulate their wealth. Some of the common activities that form part of a wealth management scheme involves capital gains assessment, estate planning^[1], risk management and last but not the least tax management.

Differences between Asset Management and Wealth Management

Following are the major differences that exist between asset management and wealth management:

1. Meaning: Asset management involves managing an individual’s or institution’s investment in the financial securities such as stocks, bonds, and other such financial assets whereas the wealth managers are involved in managing all the financial affairs of the individual or institution which includes asset management, tax management, estate planning, cash flows, legacy, insurance, retirement planning, charitable contributions etc. 

• Objectives: In the case of asset management, the goals and objectives of the asset manager is provide their client the maximum returns on their investments made in the financial assets whereas in wealth management the emphasis is beyond maximizing of returns on investment and goes beyond it to not only accumulate more wealth but also preserve the existing capital. The objectives are broader in case of wealth management such as legacy, tax planning, insurance etc.

• Scope of activities: The scope of activities is narrower in asset management compared to that of wealth managers. The asset managers mostly offer in-house products and that too related to the financial markets because they are investment experts and are closer to the market. Asset managers focus on asset allocation, risk-return ratio, portfolio management etc to increase the returns on the investments of the client. Wealth managers’ approach is more of process driven where they try to strike a balance and go for synergy gains made from the inputs from investment experts, client’s lawyers, Chartered accountants, insurance agents and others. These tasks are not dealt by the asset manager and only the wealth manager takes care of all these aspects.

• Legal responsibility: There exists a difference between both asset management and wealth management where the former is registered as broker dealers and only required to offer those products that are suitable according to the needs of the clients. This means there is no fiduciary relationship with the client. On the other hand, wealth managers are registered as investment advisors and have a fiduciary duty towards their client which means that the wealth managers are legally responsible to put the interests of their clients first.

• Remuneration of managers: The traditional industry practice with respect to remuneration of asset managers is commission based. However, the industry is trying to shift to the fee based model for the assets under control of the management. On the other hand, wealth management has always been a retainer fees based along with a fee for the assets under management.  

Conclusion 

In the process of asset management, the manager manages the investment in equity, fixed income securities, real estate etc. with a view to maximize the returns on the client’s investment. On the other hand, in the case of wealth management, the wealth manager oversees all the financial aspects of the client which may include management of assets, taxes, cash flows, estate and other uses of money. This means asset management is a subset of a bigger management process of wealth management where wealth management takes a holistic view of the client’s finances. It is on this basis, that the client needs to decide between the services of asset management and wealth management.       

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