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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.
Table of Contents
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.
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.
Following are the major differences that exist between asset management and wealth management:
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.
Read Our Article: Asset Management: Alternative Investment Funds
Prabhat has done his BA LLB (Hons) and has been writing research papers since his law school days. His interest in content writing made him pursue a career in legal research and content writing. His core areas of interest are indirect taxes, finance and real estate.
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