What is Wealth Management ?
Another term often heard in the finance sector is “Wealth Management”. Finance Planning and Wealth Management are often confused to be the same.
Finance Planning is about creating a strategy and executing it to achieve your goals. As you execute the strategy, you will create wealth. Wealth management is about growth, preservation, and enjoyment of wealth. It may involve creating multiple long-term and short-term strategies to expand and preserve wealth.
A Wealth Manager has to take active decisions to identify opportunities to grow and preserve wealth. It involves managing a large category of asset classes or managing a set of assets for an individual.
How different are Financial Planning and Wealth Management ?
Though they are often confused, they are very much different. Let us understand the differences between them under various factors.
| Financial Planning vs wealth management -Which One to choose ? | ||
|---|---|---|
| Sr. No. | Financial Planning | Wealth Management |
| 1 | It involves creating a strategy to achieve your financial goals. | It involves growth, preservation and enjoyment of wealth. |
| 2 | Having a financial plan in place is necessary even if you don't have wealth. | Wealth management comes into picture when you execute your financial plan, create wealth in the process and then need professional help to manage your wealth. |
| 3 | It involves channelizing your saving to investments which is linked to your goals. | It is active management of your wealth involving identifying the opportunities to grow and preserve wealth. |
| 4 | It is a holistic strategy considering your cash flow, tax estimates, funds to meet your goals, insurance needs, retirement planning etc. | It involves creating a comprehensive plan with multiple investment strategies which may be long-term or short-term. |
| 5 | A financial planner will suggest you an asset allocation based on your risk profile. | A wealth manager will execute the asset allocation by investing in various asset classes, according to your risk profile. |
| 6 | A financial planner will assess your risk profile based on your risk tolerance and risk-taking capacity. | A wealth mean manager has to be aware of the risks associated with each asset class and create a wealth-growing strategy for your risk profile. |
| 7 | The financial recommendations are given considering the financial goals and the time horizon for the goals. | The financial decisions are taken by the wealth manager considering only your investment portfolio. Alternative Asset such Private equity, real estate, etc. might also be considered. |
Final Words
Having a financial plan in place is the first step to create wealth. A holistic plan will help you identify your risks, fix your income leakages, set measurable goals, and create wealth in the process. Financial planning does not require you to have sufficient wealth.
As you execute the plan, you will be able to create an investible surplus, cover your risks through insurance and make investments suiting your risk profile.
On the other hand, wealth management comes into picture when you have created wealth and need professional help to grow, preserve and enjoy your wealth. It requires the active monitoring of the wealth manager to identify the right mix of investments for you.
Most people get into financial troubles and fail to create wealth because of wrong decisions and not having a financial plan in place. Even if you have accumulated sufficient wealth, a financial plan helps you to channelize your wealth in the right manner to achieve your financial goals, meet your wants and realize your dreams.