The Difference Between Wealth Management and Asset Management

Summary

The transcript discusses the distinction between asset and wealth management at JP Morgan. Asset management involves managing funds for individuals and institutions through various financial instruments. Wealth management goes beyond, encompassing the entire financial picture of a client, including mortgages, loans, and credit cards. It also addresses planning for education and legacy. JP Morgan extends these services to a wider audience, not just the wealthy, and emphasizes the importance of early saving and professional advice to counteract emotional investment decisions.

Takeaways

• 🏦 The interviewee has been with JP Morgan for 25 years and currently oversees a significant division.
• 💼 Asset management involves managing money for individuals, institutions, and funds through various financial instruments.
• 💰 Wealth management is broader, encompassing asset management plus understanding and assisting with an individual's entire financial situation.
• 🏡 Wealth management includes services like mortgages, loans, credit cards, and planning for life events and legacies.
• 👨‍👩‍👧‍👦 The services are not limited to the ultra-wealthy; they are also tailored for those new to wealth management with modest means.
• 🏢 Many wealth management firms are adapting their services to cater to a wider range of clients, including those with smaller portfolios.
• 💡 The interviewee emphasizes the importance of starting to save early and receiving financial advice to maximize returns.
• 📈 Historically, the average investment return over the past 20 years has been around 6.4%, but individual investors often see less due to emotional decision-making.
• 🤔 The disparity in returns is attributed to individuals making decisions based on market fluctuations and hype, rather than long-term strategies.
• 🌟 A key part of the wealth management business is providing guidance to help individuals navigate their financial journeys effectively.

Q & A

How long have you been working at JP Morgan?

I have been at JP Morgan for about 25 years.

What is the main responsibility of your current role at JP Morgan?

I run one of the most important parts of JP Morgan, which is the asset and wealth management business.

What is the difference between asset management and wealth management?

Asset management involves managing money on behalf of individuals, institutions, sovereign wealth funds, and pension funds across various financial instruments. Wealth management, on the other hand, includes all of asset management but also encompasses understanding and managing someone's entire balance sheet, including mortgages, loans, credit cards, and financial planning.

How does wealth management help individuals with their financial planning?

Wealth management helps individuals not only with investment but also with their liabilities, planning, gifting, legacy, and educational plans like 529 plans for their children's college education.

How does JP Morgan cater to different wealth levels through its wealth management services?

JP Morgan has figured out how to take the learnings from managing wealth for very wealthy individuals and package them for those who are just starting to save, making high-quality financial advice accessible to a broader range of clients.

What is the importance of starting to save early according to the transcript?

Starting to save early is crucial as it allows individuals to benefit from the power of compounding over time, which is one of the most important aspects of wealth accumulation.

What is the average annual return for a balanced portfolio over the past 20 years as mentioned in the script?

The average annual return for a balanced portfolio over the past 20 years is about 6.4 percent.

Why do most individuals' actual returns tend to be less than the average portfolio return?

Most individuals' actual returns are less than the average because they make emotional decisions based on market fluctuations and get caught up in the hype, leading to poor investment timing and choices.

How does JP Morgan help clients avoid emotional decision-making in their investments?

JP Morgan provides advice and guidance to help clients make informed decisions and avoid the pitfalls of emotional decision-making, which can negatively impact their investment returns.

What is the role of financial advice in wealth management according to the transcript?

Financial advice plays a critical role in wealth management by helping individuals navigate through different financial journeys and make sound investment decisions from an early stage.

How does the wealth management industry adapt its services for a wider audience?

The wealth management industry adapts its services for a wider audience by packaging services that were traditionally reserved for the ultra-wealthy into more accessible and manageable forms, allowing a broader range of clients to benefit from expert financial advice.

Outlines

00:00

🏦 Understanding Wealth Management at JP Morgan

The speaker discusses their extensive tenure at JP Morgan and their role in managing the asset and wealth management business. They clarify the difference between asset management, which involves handling money for individuals, institutions, and sovereign wealth funds through various financial instruments, and wealth management, which encompasses a more holistic approach to an individual's financial health, including mortgages, loans, credit cards, and estate planning. The speaker also touches on how wealth management services are being made accessible to a broader audience, including those new to wealth accumulation, and emphasizes the importance of early saving and receiving financial advice to counteract the impact of emotional decision-making in investment.

Keywords

💡Asset Management

Asset management refers to the professional management of various securities (stocks, bonds, and other assets) and investments of institutions and individuals with the goal of meeting specified investment goals for the benefit of the investors. In the context of the video, it is the primary business of JP Morgan, where they manage money on behalf of individuals, institutions, sovereign wealth funds, and pension funds through various financial instruments like mutual funds, ETFs, and hedge funds.

💡Wealth Management

Wealth management is a broader concept that encompasses asset management but also includes financial planning and other services aimed at the overall financial health and wealth preservation of an individual or family. The video explains that wealth management at JP Morgan goes beyond managing investments to include services like mortgages, loans, credit cards, and planning for education and legacy.

💡Fiduciary

A fiduciary is a person or organization that acts on behalf of another person or persons, with a duty to act primarily in the best interest of the person on whose behalf they are acting. In the video, the fiduciary business at JP Morgan involves managing assets with the utmost responsibility and trust, ensuring that the interests of the clients are prioritized.

💡Balance Sheet

A balance sheet is a financial statement that provides an overview of a person's or company's assets, liabilities, and equity at a specific point in time. The video mentions understanding someone's entire balance sheet as part of wealth management, which includes not only their assets but also liabilities such as mortgages and loans.

💡Liabilities

Liabilities are financial obligations or debts that an individual or business entity owes to others. In the context of the video, wealth management involves not just managing assets but also helping clients with their liabilities, such as providing advice on mortgages or loans.

💡Investment Returns

Investment returns refer to the profits or losses generated on an investment. The video discusses the discrepancy between the average investment return and the actual return that individuals receive, often due to emotional decision-making and market volatility.

💡Emotional Decisions

Emotional decisions are choices made based on feelings rather than rational analysis. The video highlights how individuals often make emotional decisions about their investments, which can lead to lower returns compared to a more balanced or strategic approach.

💡Hype

Hype refers to the excitement or publicity surrounding a product, event, or phenomenon. In the video, the term is used to describe how individuals can get caught up in the hype of market trends, leading to poor investment decisions.

💡529 Plans

529 Plans are a type of education savings plan in the United States that offers tax advantages for those saving for future education costs. The video mentions 529 plans as part of wealth management services, where JP Morgan helps clients prepare for their children's college education.

💡Legacy

Legacy refers to the amount of money or property that someone leaves to their heirs when they die. In the context of the video, wealth management involves helping clients plan for the legacy they wish to leave for their families, which could include estate planning and charitable giving.

💡First Paycheck

A first paycheck typically refers to the initial salary received by someone who has just started a new job. The video mentions that successful wealth management firms have figured out how to extend their services to people who are just starting out in their careers, even with their first paycheck, emphasizing the importance of early saving and financial planning.

Highlights

Individuals with 25 years of experience at JP Morgan.

Runs a crucial part of JP Morgan: asset and wealth management.

Clarification on the difference between asset and wealth management.

Asset management involves managing money for individuals, institutions, and funds.

Wealth management includes understanding an individual's entire financial picture.

Wealth management assists with mortgages, loans, credit cards, and financial planning.

Wealth management aims to help with assets, liabilities, and long-term financial goals.

Wealth management services are not limited to the ultra-wealthy.

Wealth management has been made accessible to those with modest incomes.

JP Morgan packages wealth management advice for a wider audience.

Emphasis on the importance of starting to save money early in life.

The average investment return over the past 20 years is about 6.4%.

Individual investors often see returns less than half of the average due to emotional decisions.

The role of advice in helping individuals navigate market fluctuations.

Wealth management's rewarding aspect is guiding people through their financial journeys.

Transcripts

OK so now you've been at JP Morgan for about 25 years. Yes. So and now you run one of the most important parts of JP Morgan

which as I say is the asset and wealth management business for people that aren't that familiar with wealth management. What

actually is wealth management and how is that different than asset management. Great question. The two are often used

interchangeably. But but but there they have distinctions. Asset management business is where we manage money on behalf of

individuals institutions sovereign wealth funds pension funds. We manage them in mutual funds. We manage them an ETF. We manage

them in single stock single bonds hedge funds private equity and the like. And that is the heart of the fiduciary business that

we run here at JP Morgan. Wealth management is that plus understanding someone's entire balance sheet. So for the

individuals where we manage money we also help them with their mortgage. We help them with a loan that they might need. We help

them with their basic credit card. And so wealth management is trying to help someone with their entire life both their assets

and their liabilities their planning their gifting the legacy that they want to leave for their families. The 529 plans they

need to prepare to get their kids to go through college. And it's a great it's a great insight into people's you know entire

journey. Now many organizations like J.P. Morgan to have wealth management businesses some are bigger than some are smaller. But

basically you're managing money for and doing other things for wealthy people more or less. Is that fairly right for wealthy

people. Although you know many of the successful wealth management firms today have figured out how to take all of those

great learnings for what they do with very wealthy people and also package them for people who are have their first paycheck.

And they want to be able to save a little bit of money or want to have access to things that maybe they wouldn't normally have.

And so we've been able to take things like what we do for a super wealthy family package it into a bite size where you walk

into a chase branch and you're able to get some of that some of the same advice. And so it's it's I think it's opening up the

world to be able to help people. And you know the most important thing is to be able to save early. And if someone can be there

to help you through that you know that's that's one of the most important things. If you look at an average investment in the

world if you just look over the past 20 years take a balanced portfolio. It's about six point four percent average annual

return for people that generally manage money. The problem is most individuals actual return is less than 3 percent. So it's

less than half of that. Why. Because they make emotional decisions when markets are one way or another and they get

caught up in the hype of things. And so it's super important to have that advice as early on as we can give it. And I think you

know that that's the rewarding part about about this business is being able to try to help people through all of those different

journeys that they have.