Financial planning and wealth management are two aspects of managing one’s finances. However, how does wealth management differ from financial planning? It’s common to use these terms interchangeably, but they are different in many ways.
They are both vital to a well-rounded financial strategy, but which one is better for an individual depends on their unique circumstances and objectives. This article will show you the difference between financial planning and wealth management, what each term means, how they differ in scope and focus, and how to choose the right one for you.
Let’s get started!
Also read: How to master financial freedom formulas and become an intelligent investor
Fundamentals of financial planning
Financial planning is all about setting up your personal finances and individual objectives in line with each other. This approach is for everyone and includes keeping track of your daily spending and purchases. You can map out your investments, monitor your spending, and adjust your strategy as needed through well-thought-out financial planning.
In short, a financial plan is a set of guidelines for achieving your financial objectives. When doing so, it is common practice to consider things like
- Your present financial status
- Your long-term objectives and
- The means at your fingertips for reaching those goals.
Wealth management is the long-term practice of keeping your money safe while helping it grow.
Understanding wealth management
Wealth management is the long-term practice of keeping your money safe while helping it grow. High Net Worth Individuals (HNIs), entrepreneurs, wealthy individuals, and their families often use this approach to gain wealth. To rephrase, it promotes the retention, growth, and creation of wealth.
A wealth planner sometimes involves:
- Discovering and capitalising on profit-making opportunities.
- Analysing capital gains.
- Preparing an estate.
- Managing risk.
- Minimising taxes.
Mutual funds, stocks, bonds, gold, real estate, etc., are only some of the financial instruments that wealth management employs. Asset allocation is a critical component of wealth management, which ultimately leads to a better financial position.
Also read: How to build wealth with asset allocation strategies?
Differences between financial planning and wealth management
Potential uses
Each strategy is for a different group of people. Individuals with a substantial net worth and an abundance of financial assets might benefit from wealth management services. The ideal outcome would be to double the current wealth by a factor of many while also protecting it.
However, Financial Planning and Wealth Management is for everyone, not just high-net-worth individuals. Achieving your financial objectives requires careful preparation to ensure that your hard-earned money is saved and invested appropriately.
The goal
The types of things that financial planning and wealth management carry out are different. The purpose of financial planning and wealth management is to help people reach their life goals by making sound decisions about how to invest their money.
It takes into account your current assets and your financial objectives and determines whether they are enough to achieve those objectives.
Contrarily, wealth management is all about making intelligent decisions about how to invest one’s current and future money in various financial instruments so that it can grow.
Scope
Each month, you should keep track of your spending, income, savings, and tax savings and planning as part of your financial plan. As a result, financial planning and wealth management includes not only the creation of money but also the laying out of a plan of action to achieve one’s financial goals.
Wealth management, on the other hand, is only concerned with your current wealth and ways to increase it via investments that guarantee high returns.
Customer participation
The individual’s active engagement is optional for financial planning and wealth management The client is required to adhere to the plan that the financial planner has developed. But to maximise investment decisions for additional wealth growth and preservation, wealth management calls for active engagement with the wealth manager.
Also read: How to grow your family’s wealth with smart budgeting and investing strategies
Financial planning vs wealth management: Quick summary
| Parameters | Financial planning | Wealth management |
| Meaning | A process of creating and following a plan to achieve specific financial goals. | A comprehensive service that helps high-net-worth clients preserve and grow their wealth. |
| Orientation | Goal-oriented. | Growth-oriented. |
| For whom? | Every individual who wants to improve their financial situation and plan for the future. | High-net-worth individuals (HNIs) who have complex financial objectives. |
| Objectives | To achieve financial objectives like retirement, property purchase, etc., one must learn how to regulate spending, save money, and invest. | Protect and increase wealth, minimise tax liability. |
| Includes | Budgeting, saving, investing, tax preparation, retirement, preparing for an emergency, etc. | Managing one’s wealth and risk tolerance, allocating assets, etc. |
| Management type | Passive management, where the client follows the plan and makes adjustments as needed. | Active management, where the wealth manager monitors and adjusts the portfolio and strategy regularly. |
| Financial decisions | Depends on one’s risk appetite, time frame, and financial objectives. | Depends on the current state of the market, client preferences, and potential investment prospects. |
Which one is right for you?
Take into account your current financial status and future objectives when deciding between a financial planner and a wealth manager. Is investing assistance something you’re after? Or are you having trouble paying the bills or lowering your debt?
If getting out of debt is your priority, a financial planner can be a good choice. If you need help making investing choices, a wealth manager might be an appropriate solution. Learn Debt management strategies: Tips and tricks.
Remember to factor in the complexity of your financial situation. If you have yet to make significant investments or assets beyond your financial strategy, or if your finances are generally simple, financial planning and wealth management could be enough to suit your objectives.
However, wealth managers have expertise dealing with complicated assets like stock options, several properties, and business goals, so you may benefit from their services if you hold any of these things.
Conclusion
Financial planning and wealth management are not mutually exclusive but rather complementary services that can help you achieve different financial goals. Depending on your net worth, financial situation, and objectives, you may need one or both of these services.
Having a clear understanding of how they differ from each other will make it easier for you to make the best financial decision.
