Wealth management vs asset management: take your corners

Wealth management versus asset management. Take your corners now - it’s going to be a fight! And where you stand depends very much on where you sit.

It has become fashionable in recent years for banks to lump these two together – largely because they are from the wealth management mindset and don’t understand the difference. For they are as oil and water, Tesla and Google, or Hillary and Trump. They are part of the same continuum – but not fungible.

In recent years banks have become keen to take over their in-house asset management businesses, partly because the power base has moved to the banks that own the client. “Real” asset management has lost its way, become systemised or boutique, as industry economics has worked against them. The key skill is one of creative manufacturing; it is intellectual at heart and depends on a focussed B2B strategy.

“Real” wealth management is a service industry and an aggregator of asset management output. It matters little whether a wealth manager has traded a share in anger. Or understands about original research, or cares much about quant or qual models. The key skill is placement... we like to think “placement driven by suitability in the interests of the client”.

Good fund managers are born, for you never stop learning...Good service orientated wealth managers are born not made – but a decent training sometimes helps.

The functions do in the portfolio building process. Asset allocation, security/product selection, portfolio construction and risk management are similar in stage; although not in detail. Asset managers tend to be narrower in allocation (more’s the pity), but as they are right bang inside the market, are immensely more sophisticated and creative. Wealth management is process driven – you don’t have to be close to the market at all, or indeed know much about investment; or wealth; or indeed management. That may be of advantage when considering suitability (e.g. structured products).

Managing the two businesses is as different as running an advertising agency or a factory in China. Asset management requires managing intellectually creative superstitious egos (usually bruised by occasional periods of under-performance). Good fund managers are born, for you never stop learning. Wealth management requires a sales process mindset, driven by accountant managers who often have limited client relationship experience. They talk about putting the client first but put pressure on RM’s for revenue. Good service orientated wealth managers are born not made – but a decent training sometimes helps.

Without asset management there is no wealth management.

Now this distinction may make no difference at all to clients because if banks don’t understand the difference, how can the clients? Asset managers offer a narrower product – for instance, does a global macro fund do what a diversified, risk-adjusted global portfolio can do? Asset managers offer largely in-house products (nothing wrong with that), are closer to the market, and more bespoke.

Clients are fickle and wealth managers are good at faking expertise. A wealth manager can provide access to shiny new Warhol-like flavour of the month products - although the benefit of this is highly debatable.

Without asset management there is no wealth management, although it is not true the other way around. That was the case when I entered the market over 30 years ago. Then wealth managers were financial planners or (at the grubby end) IFA’s.

Whether you are an asset or a wealth manager you will agree on one thing – the client cry of, “show me the money!” The response to that demand has got a lot of people into trouble.

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Richard Harris loves the intellectual stimulus of being an asset manager but wealth management teaches that it is net worth performance that counts.  www.portshelter.com.