There are many different descriptions within the financial services industry for financial management companies, including asset management, wealth management, and family office services. So when choosing an advisor, it’s key to understand the differences between these terms and the capabilities that different types of managers offer.
Asset Management is pure investment management, such as buying mutual funds (with decisions overseen by a mutual fund manager). For example, hedge funds are also just asset (e.g., investment) management.
Robo-advisors are firms that automate investment management by using computer algorithms to build and manage portfolios. Therefore, they are typically asset managers without a lot of additional services. When investors’ financial situations are more complex, they will need more of the services a wealth management firm provides.
Wealth Management: The industry has evolved and there are now wealth management firms because investment returns, over time, are impacted by more than just the investment solution. What needs to be considered are the additional strategies that tie into that decision.
Here are three examples:
- Tax planning: This could be as simple as tax-loss harvesting, but also would mean coordinating with a CPA, deciding how to distribute assets among different accounts that have different tax consequences, and what tax year in which that occurs. One tax year may have a lower tax rate for the investor than another.
- Estate planning: An estate plan typically involves different asset distributions over the investor’s lifetime and the beneficiaries who will ultimately receive the assets.
- Insurance planning and retirement planning: Cash flow distributions, retirement, and social security maximization are all decisions that ultimately affect a client’s total wealth.
Family Office includes asset management, wealth management, and a host of other services. In fact, a family office is not too different from a small business. Some investors who sell their small businesses establish family offices to take care of their wealth because of the large revenues and expenses involved.
For instance, the family may have employees on their staff, complex alternative investments, or tax Schedule K-1s they have to manage. They might have a lot of real estate investments or art collections. Family offices may have earmarked some assets for charitable and philanthropic causes. And security tends to be a key issue from physical and cybersecurity perspectives.
Finally, a major goal is to make sure the wealth gets passed on to future generations and that it lasts. Family governance, education, documentation management all fall within the services of a family office.
Contact us to learn more about BakerAvenue Wealth Management, and how we can help guide you through your personal, professional, and financial life transitions.