What is the difference between a Wealth Manager and an Asset Manager?

If you struggle to remember which companies are Asset Managers, you can go to the airport and you will see the names of the big asset managers all over the place.

Asset managers have a mandate that they have to meet, with the money that is entrusted with them. Sometimes that mandate is an inflation + target that they need to beat over a certain number of years. Other times they have to beat a specific benchmark. For example, South African Equity funds want to beat the all share index over a long period of time.

However, most importantly they all strive to beat their peers that is competing in the same “mandate” category. In the end, money chase performance. This is the mandate of the Asset managers and they have strong guidelines and rules to abide by when entrusted with investor’s money. But asset managers don’t see the individual investor. They just see the money that they need to manage.

With a wealth manager the process is totally different. It starts with the end investor and his personal plan in mind. We believe that Financial planning drives investment management.

Some of the factors we consider in the financial planning process are as follows:

  • Financial Goals
    You need to know where you want to go, to know what path you should take. When we know the end destination and the different financial goals of the client, we can recommend the specific investment strategies to achieve these specific goals.
  • Risk Tolerance
    An individual’s appetite and attitude towards risk needs to be evaluated and considered when creating a financial plan. The time horizon, personal circumstances and return expectations are few of the factors that needs to be considered.
    Personality also plays a subjective part in the risk profiling as we know certain personalities are more prone to take risk than other.
  • Tax situation
    Tax plays a big part in all investment decisions. It is therefor of the utmost importance to know the clients current tax rate and if all the tax rebates are being used effectively.
    This will impact the different investment vehicles that will be used and can materially impact after tax returns over the long run.
  • Current Asset Allocation
    You need to take into account all the assets and liabilities of the client. For example if the client work for a Listed Property company and have share incentives, then we need to go underweight Listed Property in the investments we make for the client to diversify his overall asset allocation.
  • Retirement Planning/ Needs
    It is important to establish until when the client will contribute to his retirement savings and when he will start to withdraw from his investments. This will impact the savings ratio and asset allocation of the investments.
  • Legacy Planning
    The needs of the family will need to be looked at when making investment decisions. Some clients need or want to leave a legacy to their dependants.

As a Wealth manager, we see the client first and the money invested second – it is only a tool to achieve the financial goals of the client.

While the underlying investments and asset managers of a client may change, the commitment to long term goals will stay the same.

Let us know if you have any questions.

PJ Botha CA(SA), CFP ®

Photo by Morgan Housel on Unsplash

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