Whether you are currently working with a financial professional or not, fully understanding the difference between an asset manager and a wealth manager is an important step in determining the best strategy to meet your unique financial objectives. In an industry full of financial jargon, it can become daunting to answer the simple question, “Which financial firm is right for me and my family?”
Serving as a Family CFO at Buttonwood, we take a comprehensive approach to wealth management. Our holistic planning and implementation put us squarely in the ‘wealth manager’ category. For those interested in outsourcing the design, implementation and monitoring of multigenerational strategy, a relationship with a wealth manager is ideal. We’ve compiled some key differentiators between wealth managers and asset managers so you can determine what is best for you and your family.
Asset Managers
Asset managers focus first on management of investment assets, as the title suggests. Asset management firms can be fee based “Registered Investment Advisors” (RIA’s) or “Broker/Dealers” (B/D’s). B/D’s are regulated by the Financial Industry Regulatory Agency (FINRA) and their advisors are generally held to a “suitability” legal standard of care. Compensation for advisors at asset management firms is often a combination of the traditional commission structure, however in recent years the industry has moved toward fees for assets being managed.
The role of an asset manager is to focus primarily on investments. They may touch other areas, but will generally stay away from comprehensive financial strategy. When contrasting asset management and wealth management, a disadvantage of an asset-management-only focus is a lack of detailed strategy around real-world situations. When implemented properly, asset management can produce great rates of return. However, if assets aren’t titled properly, your estate plan isn’t optimized, or tax implications across all your asset managers and investment accounts aren't coordinated, you can end up with legal and estate issues or a larger tax bill than you should have.
Asset managers are hired to focus on investments and will typically “solve” problems with an investment “products.” In contrast, wealth managers are engaged to provide solutions, outside of investments, to life’s financial challenges.
Wealth Managers in Kansas City (Family CFO)
Those who focus first on strategy surrounding the wealth of a family are wealth managers. Wealth managers follow the philosophy that financial strategy provides its best impact when all aspects of clients’ financial lives are coordinated into a comprehensive strategy. Without specific strategy to coordinate taxes, estate planning, retirement, cash flows, business, education, inheritance and more, life’s challenges can be like a game of whack-a-mole; and are much more difficult to navigate. If strategy is well designed and works together, financial lives often operate smoothly, like a well-oiled machine.
Wealth management firms are often registered with the Securities and Exchange Commission (SEC) and are held to a “fiduciary” legal standard of care, meaning they are required to put their clients' interests ahead of their own, with a duty to preserve good faith and trust. Being a fiduciary thus requires being bound both legally and ethically to act in the other's best interests.
Compensation for wealth management firms has traditionally revolved around the use of flat or hourly fees and/or a fee for assets under management, rather than commissions for product sales.
From Buttonwood’s perspective, the logic for pricing is fairly simple: As you enter into a wealth management-focused relationship, you are partnering with a team to serve as an outsourced Family CFO. Just as you expect the CFO for a business to continually review and proactively implement financial strategy, your Family CFO should be doing the same, day in and day out. This is exactly why Buttonwood has adopted the “Family CFO” model to define who we are and how we serve our clients.
Consumer and industry studies have shown the most successful wealth management relationships, as measured in terms of client net worth and longevity, are focused upon a comprehensive and detailed plan of action. The development of a broad based multigenerational strategy has been shown to make significant headway on the road required to achieving a successful and holistic approach for high-net-worth individuals and families.
Getting Started with a Wealth Manager in Kansas City (Family CFO)
As clients begin their journey toward financial peace of mind, the process often takes regular priority-driven meetings to move things forward. Expect initial meetings to provide the foundation for development of a unique plan built specifically for you. As this plan is implemented, a formal review of progress is conducted at least annually. In addition, modifications to strategy are proactively implemented as tax code, economic cycles, estate laws, and family dynamics change over time.
Which is right for me?
Unlike asset management firms, wealth management firms typically delve much more deeply – not just in your financial life, but in many areas that could impact your financial wellbeing. For example, as part of our Family CFO services, we are often involved with new business startups, retirement transitions from salary to consulting, divorce, marriage, life, and death. From an investment perspective, we manage investment assets with the objective to produce a more consistent rate of return over full economic cycles. With a more consistent rate of return comes more consistent lifetime income and more accurate wealth projections for estate planning. We also focus on strategy designed to maximize the productivity of income, minimize the impact of taxes on family assets, coordinate multigenerational family and estate complexities, and work to protect income, cash flows, and assets.
Regardless of whether you work with an asset manager or wealth manager, families who incorporate a trusted financial advisor into their lives fare better than those who do not. According to the CFP Board, “consumer use of financial advisors has increased significantly in the last five years,” going up approximately 10 percent in the span of just five years.
The root of your decision comes down to one main question: “How complex is my financial life?” For those with less complexity, in the early stages of your career, or for who prefer more control and a narrower investment-only focus, an asset manager may be the better fit. That said, we recommend hiring a “fiduciary” to ensure you are receiving advice with your best interest in mind. If you find yourself with less and less time to manage the many moving parts of a successful financial strategy, a wealth manager / Family CFO is likely the best option. At Buttonwood, we know as wealth and success increase, life doesn’t become simpler – it becomes more complex. A Family CFO can take many of the complexities off your plate allowing you more time on what really matters.
Contact us today to see how our Family CFO services may benefit you and your family.
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