Asset management and wealth management are often confused with each other. Indeed, they are closely related, Management firms may offer both, and officers may be proficient in both, but there is a distinction between the two. Below, we will examine the similarities and differences between the two fiduciary services.
What is asset management?
Asset management is a fiduciary service in which a client entrusts an advisor with the management of their assets. Asset management services may be offered by a firm focusing solely on it or by an investment bank that also provides other services.
What do asset management services handle?
The assets managed by these services can include both physical or tangible assets (cash, inventory, equipment, real estate, and investments) and intangible assets (accounts receivable, pre-paid expenses, intellectual property, and public goodwill).
Who uses asset management services?
Occasionally, asset management firms may take on individuals as clients to assist them with their IRAs or brokerage accounts. However, the vast majority of clients are institutions such as pension funds, insurance companies, sovereign wealth funds, and charities.
Who are the asset management professionals?
Financial workers who administer asset management services are known as broker-dealers. Their job is to protect the client’s assets and invest them in producing a return for the client. Brokers typically charge a commission out of every individual transaction. The commission can vary, but the most common amount is 10%. Discount brokers are available online for lower fees, but this comes without the ability to speak face to face and get personal recommendations. Broker-dealers occupy a strictly advisory role, and the client still has the final say over all investment decisions.
What do broker-dealers do?
A broker-dealer is the client’s partner in investing. The broker-dealer will advise the client whether to buy, sell, or hold securities. They will make a determination regarding which assets should be invested and which types of securities should be bought. Of assets they have determined to be investable, they will advise how much should be invested into growth products (stocks, mutual funds, index funds, and private equity) and how much should go into fixed income products like bonds.
Just as important as the types of securities bought is the timing of their purchase. A good broker-dealer is always thinking about the future. They will be skilled at predicting market volatility and analyzing risk, and thus knowing when to buy or sell. They will diversify the client’s portfolio so that if, for example, one particular stock comes tumbling down, the client’s fortune won’t be dragged down with it
Broker deals will also use tax shelters and strategies like tax-loss harvesting to minimize the tax client’s tax burden. Their ultimate goal is to get the highest possible return on every dollar the client has invested.
Legally, a broker-dealer’s advice must be appropriate for the client’s plans and needs. They must take their duties and responsibilities seriously and may not attempt to defraud or mislead any client. These guidelines are written into U.S. Law (15 U.S. Code § 80b–6), and the penalties for violation can run into millions of dollars.
What is wealth management?
We’ve established that asset management is good for short-term investment gains, but what about the long run? This is where wealth management comes in. Wealth management is more comprehensive fiduciary service for long-term financial planning. It encompasses the short-term growth of asset management but takes it further down the road. The goal is to build a financial plan that will serve the client at every stage of their life.
What do wealth management services handle?
In the immediate term, wealth management will deal with expenses like mortgages and home, health and auto insurance. Financial services will include assistance with credit cards and tax planning. They will also prepare for emergencies by managing a rainy day fund and establishing coverage for life insurance, disability insurance, and long-term care insurance. In the longer term, they can help clients plan for college education expenses by managing 529 plans for clients’ children. Perhaps most crucially, wealth management services will prepare a client for retirement by ensuring that they will have funds available from which to take a livable salary for life and medical costs. But it doesn’t have to end there – wealth management can also encompass succession planning such as trusts and foundations.
Who uses wealth management services?
Clients of wealth management services are typically individuals with high net worths or investors working with a large amount of capital. Many firms set a minimum amount of assets under management (AUM) for prospective clients, such as that $10 million in AUM that Goldman Sachs requires.
Who are the wealth management professionals?
Wealth management officers are known as investment advisors. They may also be called portfolio managers, asset managers, investment managers, or investment counselors. Investment managers work similarly to brokers in terms of their advice for investments but on a longer timeline. Another crucial difference is that investment managers can be entrusted to make decisions on behalf of their clients. Investment managers are always required to register with the SEC or a state regulatory body.
Investment managers either charge flat fees or fees based on the value of assets under management (AUM). A typical asset-based fee is 1 to 2% of AUM. Because these services run longer than standalone asset management services, the fees are charged at regular intervals on a long-term schedule, such as quarterly or yearly.
What do investment advisors do?
Investment managers work with accountants and lawyers to ensure that the plan is in compliance with all regulations. Given the longer scope of their planning, it is even more important for investment advisors to prepare for ways the market and the world might change in the future. A major part of this is performing stress tests, which are analyses of how investments will deal with an economic crisis. A good investment manager will take the time to get to know their client as a person to understand their desires and have the vision to help the client prepare for events that may be decades away.
Trust Company of Oklahoma’s Investment Management Services
If you think you’d benefit from investment management services, give Trust Company of Oklahoma a chance. Our experts will help you build a holistic financial plan that will prepare you for anything life may bring. Call us in Oklahoma City at (405) 840-8401 or in Tulsa at (918)744-0553.