While most famous for its use in management consulting, MECE is a magic problem-solving principle that can be used anywhere, anytime, and by anyone.
This definitive guide will explain what MECE is, why MECE is important in problem-solving, and how you can be MECE. There will also be tips and tricks, application of MECE in Consulting Resume and Case Interview
Asset Management is the management of investments on behalf of others with the goal of growing their portfolio and finance while mitigating risk. The asset management division of investment banks involves managing the funds of corporate institutional investors by investing in specific asset classes, such as stocks, fixed-income securities/bonds, derivatives investments, and other types of investments.
In a nutshell, the asset management division of an investment bank performs the basic functions of investment management and sales and distribution. There are portfolio managers for specific funds such as growth funds, value funds, and domestic funds. The sales and distribution division of an investment bank is responsible for creating a marketing strategy for creating, positioning, and selling the investment products of the investment bank.
1.2. What is Wealth Management?
Wealth management (or private wealth management) provides services to a wide array of clients ranging from affluent to high-net-worth (HNW) and ultra-high-net-worth (UHNW) individuals and families. It is a discipline which incorporates structuring and planning wealth to assist in growing, preserving and protecting wealth, whilst passing it onto the family in a tax-efficient manner and in accordance with their wishes. Wealth management brings together tax planning, wealth protection, estate planning, succession planning and family governance.
Large U.S. financial institutions such as JP Morgan and Goldman Sachs run a specific private wealth management business unit with investment specialists and client advisors to cater to HNWI. Since wealthy individuals lack the time and knowledge to manage their wealth efficiently, they consult with wealth managers with significant experience in managing finances for private individuals.
The manager designs an investment strategy and proposes investment products that are in line with the client’s financial goals and risk tolerance. Most clients work with a single wealth manager, who takes inputs from the client’s attorney, accountants, and insurance agents.
2. Focus Area of Asset Management vs Wealth Management
The most significant difference between asset management and wealth management is the level of focus in both departments.
2.1. Asset management only focus on investment assets
Asset management has a very narrow focus; it is all about the assets of a high net worth individual. It is majorly concerned with accumulating, growing, and protecting the individual’s assets. Depending on the asset management firm, its goals are usually tied to some number, and all efforts are directed towards achieving that specific target.
It does not delve deeply into the other financial issues such as tax planning, estate planning or retirement planning. Asset management is a subset and one aspect of wealth management.
2.2. Wealth management focus on different areas of financial planning
While asset managers are wholly intent on taking care of a client’s investments, wealth managers take a broader look at their entire financial circumstances in order to optimize their money in a way that achieves individual goals in the long run.
Wealth management is more than just investment advice: It can encompass all parts of a person’s financial life. It does include asset management, but it also includes a lot more than that. It takes a more holistic approach to asset management and ties it with other goals, such as retirement goals, short and long-term financial goals.
3. Types of Clients for Asset Management vs Wealth Management
While asset management service is offered to a broad range of clients, wealth management is reserved exclusively for those with high net worth.
3.1. Asset management’s client
Typically, asset management firms are categorized according to the kind of clients they serve. Clients generally fall into one of three categories: Institutional investors, high-net-worth individuals, and retail investors.
Institutional investors: These clients represent large pools of assets for government pension funds, corporate pension funds, endowments and foundations. Unlike investors in mutual funds, institutional clients have separately managed portfolios that, at a minimum, exceed $10 million. Also unlike mutual funds, they are all exempt from capital gains and investment income.
- Pension funds: Pension funds are pooled monetary contributions from pension plans set up by companies. In addition to the employer’s contribution, a pension plan allows a worker to put part of his current income from wages into an investment plan to help fund retirement. Asset managers invest the pool of funds on the employee’s behalf, and the earnings on the investments generate income to the worker upon retirement
- Insurance company: Insurance companies, by their very nature, accumulate substantial amounts of cash. The capital needs to be invested to mitigate any financial risk and ensure that the insurance companies are able to cover liabilities (legal costs and payouts) to clients in the event of accident or property damage
- Sovereign wealth funds (large pool of money owned by government), university endowments, charities and other foundations
High net worth individuals: Individuals with minimum investable assets of $1 million. These investors are typically taxable (like mutual funds but unlike institutional investors), but their portfolio accounts are managed separately (unlike mutual funds, but like institutions).
- Some asset management firms have re-tooled their businesses to increase their offerings and better serve smaller investors who are below the status of high net worth. Many of these companies create pooled structures such as mutual funds, index funds, or exchange-traded funds (ETFs), which they can manage in a single centralized portfolio. Smaller investors can then invest directly in the fund or through an intermediary such as another investment advisor or financial planner.
- Mutual Fund focuses on investments that perform better than market index (S&P 500 or AXS 100). Whereas, an ETF (an offshoot of Mutual Fund) holds a basket of index portfolios that are traded on stock exchange.
- Example: Vanguard, one of the largest asset management companies in the world, focuses on lower- and middle-income investors. These clients don’t need complex investing strategies or don’t have to worry about things such as asset placement. They might simply buy $3,000 worth of a Vanguard S&P 500 index fund and hold it for the long term.
3.2. Wealth management’s client
Wealth managements caters towards individuals and families who are:
- Ultra-high-net-worth: liquid financial assets above $30 millions
- High-net-worth: liquid financial assets at least $1 million
- Sub-high-net-worth (also referred as affluent investors): liquid financial assets less than $1 million but more than $100,000.
Since wealthy individuals lack the time and knowledge to manage their wealth efficiently, they consult with wealth managers with significant experience in managing finances for private individuals.
Certain larger firms (UBS, Morgan Stanley and Merrill Lynch) have “tiered” their platforms – with separate branch systems and advisor-training programs, distinguishing “Private Wealth Management” from “Wealth Management”, with the latter term denoting the same type of services but with a lower degree of customization and delivered to mass affluent clients.
At Morgan Stanley, the “Private Wealth Management” retail division focuses on serving clients with greater than $20 million in investment assets while “Global Wealth Management” focuses on accounts smaller than $10 million.
4. Asset Management vs Wealth Management Function
4.1. Asset management function
The role of an asset manager consists of determining what investments to make, or avoid, that will grow a client’s portfolio. Rigorous research is conducted utilizing both macro and micro analytical tools. This includes statistical analysis of the prevailing market trends, interviews with company officials, and anything else that would aid in achieving the stated goal of client asset appreciation.
They help with asset allocation, or choosing how to divide investable assets among different asset classes. Namely, this entails determining what percentage of clients’ portfolio should be growth investments versus fixed-income investment, depending on clients’ risk appetite. The aim is to maximize returns without assuming excessive risk.
Here are some types of investments within the scope of asset management:
- Stocks: small caps, large caps, blue chips, growth stocks, etc.
- Bonds: short and long maturity, corporate and government
- Commodities: oil, gold, silver, etc.
- Alternative investments: real estate, private equity, hedge funds, art
4.2. Wealth management function
Wealth management begins with crafting a holistic plan to help clients in achieving their vision of financial success. Wealth management takes shape through the process of advanced financial planning which addresses 4 elements:
- Wealth enhancement: The first assignment of wealth managers is to create new income and grow clients’ current wealth. Wealth managers help to produce the best possible investment returns consistent with clients’ level of risk tolerance while minimizing the tax impact on those returns. For example, they can help their clients invest in hedge funds and private equity funds that may not be accessible to less wealthy individuals.
- Wealth protection: Wealth management includes mitigating the risks associated with liabilities, creditors, predators and divorce. Wealthy clients are sometimes sued for numerous reasons, including succession, marital issues, and property disagreements, and they may be forced to compensate the other parties if they lose the lawsuits. The wealth managers ought to be ahead of the game and find ways to handle the lawsuits, either by stopping them from happening or by making favorable out-of-court settlements. They may also move a portion of the client’s wealth to offshore banks to protect it from being over-taxed.
- Wealth transfer: One major concern of wealthy individuals is the distribution of their legacy after death. In order to have a peaceful and orderly distribution, documents are sometimes not enough. A definitive, well-thought-out plan can help soothe potential conflict among remaining family members. Wealth managers can also advise on inheritance tax in order to mitigate the effects of the estate tax burden on clients’ beneficiaries.
- Charitable planning: Wealth managers can advise clients on the transfer of wealth into philanthropic endeavours, such as how to set up trusts and foundations, and how to manage charitable donations.
Services offered by wealth managers may include, but are not limited to: portfolio management, legal advice, annual income tax planning, legacy planning, estate planning, charitable giving plans, mortgage refinancing, insurance, retirement planning, 401k advisory services, etc.
|Position Title||Promotion Timeline||Job Description|
|Research Associate||1-2 years|
|Senior Analyst/ Sector Analyst||5 – 8 years|
5.2. Wealth management career paths
At most firms, professionals in wealth management are split into relationship managers and investment professionals. The job of the relationship manager is to know the client. The job of the investment professional is to know the investments that are considered by, and for, the client.
It is the relationship manager who is primarily responsible for meeting the client’s needs and wishes, and who most often meets directly with the client, although investment professionals are frequently included in regular, scheduled client meetings.
In the case of ultra high net worth clients, there may be an entire team of people assigned to a client’s account, but there is still usually a single relationship manager assigned to oversee the account and to serve as the firm’s primary representative.
Different firms have different titles, but you’ll start out with the main task of being an assistant to help relationship managers, teamwork with internal teams, take care of the paperwork, and other operations. After a while, you may be trusted and allowed to do transactions and interact with clients on their service issues. And finally, you can take your own clients and become a full-fledged wealth manager.
At most banks, you’ll advance from Analyst to Associate in 2-3 years; the advancement time after that is highly variable because it’s performance-based. There’s less of an artificial “promotion timeline” than there is in asset management, so you’ll occasionally see people who get promoted from Analyst up through VP in < 5 years (though it’s not common).
|Basis for Comparison||Asset Management||Wealth Management|
|Definition||Refers to the management of the client’s assets||Refers to the management of all financial aspects of the client|
|Scope||More narrowly focused than wealth management||More broadly focused than asset management|
|Functions||Sets asset allocation (stocks, bonds, etc.), manages ongoing investment risk by diversifying, rebalancing, tax-loss harvesting||Includes asset management but expands to encompass financial planning, retirement planning, tax planning, and ongoing advice.|
|Clients||Mutual funds, institutional investors, high net worth individuals||Reserved for individuals and families who are high net worth|
7. Key Takeaways
Sometimes we hear the terms wealth management and asset management used interchangeably, but there are important differences between the two services. Both may be used as a tool for managing and growing financial resources, but service users may require further expertise that stretches beyond their investments.
An asset management firm helps find the best investment options for clients’ portfolios to boost your profit margins in a strategic way, but leave all of the other parts of their finances to them. Whereas, a wealth management firm offers comprehensive financial planning and greater assistance in overcoming a range of financial hurdles in a way that simple asset management couldn’t compete with.