The Informed Investor

Financial Planning vs. Wealth Management

Michelle Konstantarakis, Vice President, ICC

December 14, 2018

What does it mean to manage one’s wealth (or assets) versus financial planning? Some might think the two are synonymous and approach their wealth management and financial planning similarly. While the differences between the two are nuanced, knowing the distinction is important for any investor.

When we talk about wealth management, we’re referring to how to structure, monitor, measure, and evaluate financial assets’ performance. Whereas, financial planning refers to how money is being spent, and how such use impacts your life and the ability to sustain your financial goals.

It’s essential that an advisor understands how to manage a client’s assets given all kinds of expenses (or necessities), from medical emergencies, home renovation, retirement, and everything in between.

How you spend your money should drive multiple decisions in your investment planning process. Financial planning is usually the first step to establishing and managing the right investment strategy. Neither is a simple task, but you shouldn’t do one without the other. Before you invest in the markets, you should have a clear understanding of how your money is being used in your daily life.

Think of financial planning as specific budgeting that covers your basic necessities: mortgages, bills, car loans, and other regular recurring expenses. A financial planner usually monitors these accounts for you, ensuring that your budget and expenses do not exceed your income. Financial planners will often double as wealth or investment managers, however they are typically not experts in both fields.

Wealth management is a more comprehensive approach. This method uses in-depth strategies that consider your entire financial and personal objectives, including taxes, suitable investments, risk tolerance, and more. Wealth management also analyzes your spending and wealth, while also searching for new opportunities for principal growth.

When searching to engage with financial professionals, it is critical for investors to understand the differences between them, especially in their core competencies and their firm’s client service model regarding fiduciary care, in order to select one that best fits their needs.