Investment Management vs Wealth Management
A common misconception among consumers seeking professional financial advice is that all advice is created equal, or ‘all financial advisors do the same thing’. This could not be further from the truth. As its name suggests, investment management focuses on the oversight of investment assets without much, if any, consideration to your full financial situation. Investment managers focus on selling investment products to you, rather than financial solutions. After all, this is typically how an investment advisor gets compensated.
Wealth management is also a blanket term that gets thrown around in the financial services industry. What we are focusing on is holistic wealth management, conducted by a CERTIFIED FINANCIAL PLANNER™ professional. A financial planner can and will invest your assets, but their value goes much beyond your portfolio.
A financial planner takes time to consider your full financial plan before making investment decisions. A financial plan is a compilation of your retirement plan, estate plan, tax situation, education plan, insurance protection, and investment portfolio. It is like a roadmap; it gets you from where you are currently at, to where you want to end up. A systematic approach to achieving your financial goals.
Your investment portfolio is a function of your financial plan, not the other way around. How can investment recommendations be made without fully understanding what your goals are for the portfolio? The answer is you simply cannot effectively build a portfolio without knowing the full financial picture.
Example: 50-Year-old couple, selling their business for $1,000,000 and wants to know what to invest in.
A CERTIFIED FINANCIAL PLANNER ™ professional couldn’t begin to make any recommendation with only this information. A good spot to start would be to understand the client’s net worth. A balance sheet would be built to summarize all the client’s assets and liabilities. A spending analysis would be done to understand what the client is currently spending, and what they plan to spend in retirement. Two years of tax returns would be analyzed to better understand the clients’ current and future tax brackets. A conversation or risk assessment would be conducted to understand the client’s temperament to market risk. Other good questions to ask would include: do you plan to stay in your current home? Do you plan to move to another state part-time? Do you have dependent children or children in college that you are providing for? How’s your health? What happens if one of you passes away before the other? Do you want to leave a legacy or give it to charity?
Financial plans are complex, detailed, and unique. No investment portfolio or financial plan should be constructed under the one size fits all methodology. The importance of developing your holistic wealth management plan with a financial planner that you trust cannot be overstated. Consider working with a financial planner that finds you holistic financial solutions, and not the next best financial product. After all, it’s not about the investment portfolio return, but how those investment returns fulfill the goals of your financial plan.
I hope this brings a deeper understanding of the differences between Investment Management vs Wealth Management. Here at Ascent, we offer personal, holistic financial planning to help you reach the pinnacle of your life. Take the first step with us and reach out and contact us today!