I’ll be honest, I get excited when folks like you come to me with questions like this. You’re at a point in your life where you are thoughtfully considering your options to create a successful financial plan for the future. When you take a step back from the nuanced complexities of investment strategies and financial planning, that’s what this work is all about — making your dreams for you and your family possible.
However, my guess is that one of the reasons you’re researching the differences between asset management and wealth management is that our industry doesn’t make your job easy. Don’t get me wrong, I love my profession, and there is nothing that brings me greater joy than helping our clients realize their financial goals.
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Still, the financial industry we call home doesn't have a stellar track record of offering folks like you clear-cut definitions of what asset management and wealth management actually are — and which of those two paths may be right for you.
Don’t worry, by the end of this article, you’ll have a clear understanding of:
But before we dig into answering those questions, I want to empower you with a little “insider financial industry baseball” that will help you with this decision you’re about to make, as well as others in future.
First, let’s talk about how financial terms are defined for consumers like you, and why it can be pretty confusing sometimes.
Truth be told, like many others, is built to sell stuff. The industry makes money when financial professionals sell stuff. So, the industry has evolved to the point where everything gets turned into a “product” that can be packaged neatly and sold.
I’ll be honest, even though I am a part of this industry, I don’t particularly love this aspect of it. In fact, it pisses me off, because this approach doesn’t serve clients like you very well. (Which is why I don’t like doing business this way with our clients.)
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When you focus on the sale of packaged financial products, rather than developing long-term relationships with clients that are oriented around results, financial professionals can all too easily lose sight of the broader picture of the work we’re meant to be doing for you.
My role is to help you achieve your life goals (whatever they may be) through sound financial planning and investment strategies.
It behooves both of us for me to do my job very well, guiding you toward the financial results you seek. When you are profitable in your financial life, so am I. That may sound selfish to call out but, truthfully, I think God put us on this earth to help each other and serve each other, so that we may all rise.
The potential for these fruitful financial relationships to take root over the long-term, however, is compromised when the financial professionals you need are focused on driving transactions through the sale of financial products.
Which brings us to the heart of the matter. Yes, I stood up on this soapbox with you all for a reason.
We define asset management and wealth management in ways that may be different than what you’ll find elsewhere. That is on purpose. The definitions that follow are not only more clear, they are founded on our approach, which is designed to serve you, the client, first, rather than an arbitrary sales goal of ours.
Let’s start by looking at what Investopedia says about asset management:
“Asset management is the practice of increasing total wealth over time by acquiring, maintaining, and trading investments that have the potential to grow in value.”
In contrast, here’s how they define wealth management:
“Wealth management is an investment advisory service that combines other financial services to address the needs of affluent clients. Using a consultative process, the advisor gleans information about the client’s wants and specific situation, then tailors a personalized strategy that uses a range of financial products and services.”
They go on to note that a “holistic approach” is often deployed for these clients, calling on a number of different financial planning disciplines including, but not limited to: estate planning, retirement planning, tax services, and so on.
But what the heck do those definitions really mean?
The best way to truly understand the difference between asset management and wealth management is to take a step back and think about the difference between the definition of wealth vs. the definition of an asset.
Wealth is the overall, big picture of your finances. It’s the abundance of your valuable possessions, if you will. Your land, your house, your company, the stocks and bonds you own, the investment you made with friends down the street that now yields a nice dividend … you get my point.
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An asset, on the other hand, are the properties a person or company owns that possesses value or produces an income. So, your assets are the different valuable possessions you own that collectively also fall under the larger umbrella of “wealth.”
When comparing the two, an easy way to think about it is that wealth is the forest, and your assets are the trees.
Now, let’s talk about each of these financial planning disciplines in greater detail.
If I’m your wealth manager, that means we’re doing big picture financial planning. For instance, I’m managing your private and public investments.
If you’re an entrepreneur, wealth management doesn’t mean I run your company for you, but we will talk about your company, so I understand how the company you run fits into your overall financial vision. It’s the same as I would want to understand how you’re leveraging a vacation property as an Airbnb rental, the revenue you receive from it, etc.
These factors contribute to your overall financial health.
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That’s why we would also be talking about your tax strategies, we’re talking about your estate plans, your powers of attorney, and more. You likely have many variables we will need to consider and discuss (e.g., trusts, family, bonds, LLCs) as we build the right wealth management strategy for you.
When you work with a “wealth manager” or a financial planner to oversee your wealth management, their job (ideally) is to quarterback this entire process.
When you’re building a house, typically, you’re working with a general contractor who will oversee the entire project. They will then have many subcontractors who report to them, who specialize in certain areas — electricians, masonry builders, painters, plumbers, etc.
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The subcontractor who is a specialist whose only concern is the work they have in front of them. They are not concerned with the overall project or how everyone is working together to get your house built on time, on budget.
That’s the job of your general contractor, to guarantee your vision for your new home is achieved … on time and on budget.
This is how you should think about financial professionals who may potentially work with you to manage your own wealth. They are the general contractor who understands your vision and is responsible for making sure all of the right financial subcontractors are working together to help you achieve your financial goals.
To continue with our house metaphor, asset managers are the financial equivalents of your subcontractors managing their own individual parts of your house project. But instead of electric and plumbing, your asset management “subcontractors” could include CPAs, real estate agents, stock brokers, and so on.
They also will report to your wealth management “general contractor,” who is the one tasked with understanding your vision for the future, and executing the financial strategy that will get you there.
Now that you have a more clear picture of the difference between wealth management and asset management, this is the big question, right? Well, the answer here comes down to you and what you want to do.
Do you want to be your own financial planner? Do you want to be the “general contractor” responsible for managing all of the different asset management “subcontractors” you need yourself?
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If the answer is yes, then your next step is to hire the asset management professionals you need, based on your unique financial goals.
On the other hand:
Wealth management is the path you should be walking with the right financial professional — we’ll talk about what “right” means here in just a moment.
Hey, if you don’t want to quarterback your own financial planning strategy, that’s not a bad thing! I recently got neck surgery, and you know what I did before it? I watched videos on YouTube about what my surgery entailed and how the procedure works. What can I say, I’m a curious guy!
But at no point did I even consider wanting to do the surgery myself. That’s what doctors are for! And the same may be true for you.
Some of you all may relish the opportunity to step up to the plate as your own wealth manager — it’s a ton of work, but that may be just the ticket for a few of you! Others of you may want to rely on professionals who have dedicated their careers to stuff like retirement planning and investments, and that’s fine, as well.
If you’re one of the folks who would like nothing more than to have someone else be your wealth management general contractor, this section is for you.
This is where things get a bit frustrating again, because what you really need is a financial advisor — you don’t need to find someone who is a wealth manager, specifically. The problem is that everyone calls themselves a financial advisor who has a certain license; and making the call for someone to be your financial advisor based on the possession of a license alone isn’t going to cut it.
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You’re essentially looking for someone who will help you build your future. That means you need to be able to trust whomever you choose.
What you need to be asking of any financial advisor is: “Can I trust you to operate with integrity, not just because legally you are a fiduciary?”
That word “fiduciary” is a confusing one, but it’s an important distinction you must understand. Only financial professionals who are licensed fiduciaries should call themselves financial advisors. They are legally required to act in your best interest. Still, those who are meant to act in your best interest, in accordance with the law, can make financial decisions for you that are unethical or not in alignment with your values.
This is why your decision-making here is a two-fold process:
No license or professional designation can tell you definitively whether or not you can trust someone with your money or to operate in a way that stays true to your values. That is a very human decision you need to make on your own.
So, if you consider yourself someone who has a sharp intuition, listen to it. And you need to ask thoughtful questions of financial professionals before you commit to a decision of who will help manage your wealth and assets.
The flip side of this coin, of course, is that while you may trust your pastor to operate with integrity, he likely can’t help you with your financial planning. That’s why you still need to look closely at a wealth manager’s competency in their field:
Keep in mind, none of us can predict with any absolute certainty what’s going to happen with the stock market. In that way, the stock market can feel a bit like gambling. Every single one of you wants us to be these great stock market soothsayers, but none of us are — that’s just a fact.
So, you’re not looking for someone whose competency is stock market prediction. You want a financial advisory partner who has defined processes they can take you through, with a history of developing financial strategies that can weather blips in the market and keep you on track.
We’ve covered a lot of ground in this article, so let’s get you oriented with the next step you need to take. Because, while I am able to share all of these financial insights with you, I cannot tell you which path — asset management vs. wealth management — is the right one for you.
Only you can do that.
To make the right call for you, here are the three questions you need to answer when thinking about the next steps for your financial plan:
Remember, it doesn’t matter if you choose to work with a financial professional for wealth management or asset management. While they should be able to ask you the right questions to help you refine your vision and define your financial goals, ultimately, you are the one who sets that vision.
The above questions will help you step into that financial planning role for yourself. And if you’re struggling to answer that first question, don’t be too hard on yourself. Instead, see that your first step is to sit down for a holistic financial planning conversation with an advisor who can help.