"Wealth Management" and "Financial Planning" are often used interchangeably and confused for one other. Although they both come from the same financial management family, there is a fine line between them that should be understood to make sure you are consulting with the right financial professional.
Let's take a look at the roles of each and some key differences between financial planning and wealth management.
What Is Financial Planning?
Financial planning focuses on managing your daily finances so that you can live independently and have a sturdy financial foundation to build on. A Certified Financial Planner (CFP) will tailor a strategy to help you achieve your specific financial goals and objectives. They will help you set goals, create a budget, and find the right investments for your lifestyle based on various factors, such as, risk tolerance, expenses and income.
What Is Wealth Management?
Wealth management is a service that focuses more on helping high-net-worth individuals grow, preserve, and distribute their wealth. It is a comprehensive and holistic financial planning service that includes investment management, tax planning, estate planning, risk management, and retirement planning. Wealth managers often work closely with clients over an extended period of time-sometimes decades-to help them grow their assets in order to meet their long-term objectives.
Financial Planning Vs Wealth Management - What's The Difference?
It’s true that the line between financial planning vs wealth management can get a bit blurred and confusing. Here are some practical guidelines and examples to help you understand the key differences between financial planning and wealth management:
- Financial planning is about managing your money on a day-to-day basis, regardless of how much you have. For wealth management to work, there needs to be a base of wealth on which more capital or investment funds can be built.
- Financial planning is about making specific product recommendations to help you reach your goals. Wealth management takes a more holistic approach to help you build and protect your wealth.
- Financial planning can often be focused more on the present and near future, while wealth management looks at all aspects of your life, including finances.
- Financial planners typically offer their services as a fee-only service with no hidden costs or commissions. This means they're just getting paid for their time and expertise-not based on how much money you invest in certain financial services or products.
Now that you have a clearer picture of the differences between financial planning and wealth management, how will you know at what stage of your life you will need which?
Key Phases Of Financial Planning And Wealth Management
There are multiple phases in planning for your financial goals, each of which will require a different set of actions and a different type of strategy. Before you start trying to make more and more money without a plan in place, think about which stage you are in and if you should consult financial planning vs wealth management professional.
Consider the following phases of financial planning and wealth management:
Learning Phase
The learning phase is a critical first step toward a successful financial future. It’s where you build the foundation for all of your financial goals and begin to put your plans into motion. Here, you will assess your current financial situation, set realistic and achievable goals, and determine what you want your future to look like.
Accumulation Phase
The accumulation phase is often when people start to think about what they want to do with their money, how much risk they want to take on, and how they want to invest. It's time to start making financial decisions with your long-term future in mind. You may also be saving for retirement or buying assets that will help provide income later on.
A financial planner can help you set up a plan to reach your goals and guide you through this phase by providing advice on managing assets, insurance, and taxes.
In contrast, a wealth manager will typically work with clients who already have significant wealth and focus on preserving their wealth while growing it as they age.
Retirement Phase
Once you have mastered the art of wealth management, you will find that it is much easier to plan for your retirement phase. This is arguably one of the most important phases of wealth management because, at this stage, your goal is to make sure that you can live comfortably in your golden years.
This stage is less calculated and more conscious than the previous stages, as you will always need to keep in mind that how you choose to spend your money will affect how long it lasts.
Your retirement plan should be carefully crafted by an experienced financial professional who has knowledge of all aspects of wealth management.
The Bottom Line
Financial planning and wealth management firms generally have different goals, along with divergent areas of focus. A financial plan aims to help people secure their short-term and long-term financial needs, while wealth management will help you ensure that your hard-won assets remain secure and sound. That's not to say these services won't work in tandem. In fact, many wealth managers strive to provide holistic financial planning for their clients-but it is also true that each service has its own set of strengths and weaknesses.
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