The terms “asset management” and “wealth management” are often used interchangeably to describe investment services. While they are closely related, they are not one and the same.
What is Wealth Management?
Wealth management goes beyond managing stocks and bonds. It covers all the financial aspects of an individual from owned assets, private business, income and cash flow.
The finances of wealthy individuals tend to be complex. For example, wealth could be spread across multiple accounts, or tied in businesses that may either generate cash or require more investment for growth. And there may be tax considerations depending on where the accounts or business is domiciled.
Wealth management covers a broad range of services that may include one or more of the following:
- Estate planning: Planning for the transfer of wealth from one generation to the next, taking into account inheritance laws and taxes.
- Investment management: Seeking optimal risk-adjusted return based on an individual’s risk appetite and investment goals.
- Legal planning: Facilitating legal requirements (e.g. establishing a new company structure, liability management, etc.).
- Charitable donations: Maximizing the impact of philanthropy.
- Tax and accounting services: Coordinating filing tax returns on time for income or capital gains (e.g. business sale) where necessary.
- Retirement planning: Helping to establish retirement needs (timeline, capital required) and planning to achieve them (actions year by year, investment objectives).
The above is by no means a comprehensive list. The scope of wealth management is always expanding depending on client needs and may extend to education, training and other areas of life.
What is Asset Management?
Asset management is narrower in scope. Its goal is simply to maximize the value of an investment portfolio in line with the investor’s risk tolerance and objectives.
An asset manager will select, acquire, maintain, and trade investments in multiple asset classes that have the potential to grow or generate income while managing risk.
Asset managers may work directly with individual investors or in collaboration with wealth managers.
Asset management is more specialized than wealth management, but it is no less complex. A dedicated manager provides benefits to investors that include:
- Professional management: A professional asset manager is a specialist who understands and can navigate the risks of capital markets.
- Diversification: With access to multiple options and asset classes, an asset manager can spread the risk of a given portfolio effectively.
- Customization: Asset managers can provide bespoke portfolio solutions to cater to clients’ specific needs. For example, the portfolio of a client who already holds large real estate assets may concentrate exclusively on non-real estate assets to ensure diversification.
- Monitoring: Asset managers monitor the portfolio constantly and attempts to benefit from market trends to generate higher returns or avoid loss.
Asset managers often trade in and build portfolios comprised of a broad range of asset classes that may include one or more of the following:
- Stocks: A publicly traded share of ownership in a given entity, which can increase or decrease in value according to the performance of that entity.
- Bonds: A publicly traded share of the debt of an organization, which generally pays a fixed amount in interest at periodic intervals, and is graded according to the risk of the underlying entity.
- Commodities: Basic goods (such as sugar, coffee beans, oil) that are often used as an input for other manufactured products.
- Mutual Funds: Pooled investment vehicles owned by many investors but managed by a limited number of advisors.
- Index Funds: Pooled investment vehicles that invest in a given index (e.g. S&P 500) and are rebalanced to follow the performance of the index.
- Private Equity: Direct investments in private companies, often with controlling rights, with a view to sell them at a profit by a value addition strategy that may entail, restructuring, mergers and acquisitions with other companies to achieve greater scale, improving efficiency, growing market share, etc.
- Hedge Funds: Funds that pursue a wide variety of specialized investment strategies (e.g. leverage, short-selling, derivatives) usually in public markets.
- Real Estate: Property ownership either directly or indirectly through a pooled investment fund to generate income, improve value through development or refurbishing, etc.
Building a portfolio of these asset classes is based on an asset allocation or individual security selection that suits the investors objectives and risk profile.
The Family Office
The Family Office has many years of experience in asset management and wealth management services that cater to the unique needs and objectives of each investor.
Schedule an appointment with a financial advisor to discuss your options.