Wealth Management | Investment Strategy
By: Plancorp Team October 12, 2022
It can be confusing to hear various financial planning terms and know what best suits your needs. They might sound the same, but investment and wealth management are quite different. Knowing the difference can help you align your financial goals with what is available when choosing an advisor. Essentially, investment management vs. wealth management comes down to the overall scope, with wealth management being a more holistic approach. In contrast, investment management is limited to an individual’s investment portfolio. When you ask yourself, “Do I need a financial advisor?” weigh the differences between managers based on your comfort level with managing your estate and other financial needs. Investment management is primarily the management of a portfolio. More than buying and selling stocks, investment management includes both a short and long-term strategy for your portfolio holdings. It focuses on a variety of elements within your investment portfolio, and investment managers will consider when and how investments should be rebalanced, generally with the simple goal to maximize value. Your broker or advisor will help you set investment goals and determine a risk tolerance based on a client assessment to start with an appropriately balanced portfolio. Understand that even within the world of investment management, not all managers are equal. To ensure you're working with someone who prioritizes, be sure to ask about their fiduciary standard and whether they are dually registered. If you feel you have a good handle on other areas of your estate, you might only need an investment manager. So, what is wealth management? Investment management is a component of wealth management, but a wealth manager takes a more holistic view of your financial picture and estate to build a full plan. Along with growing and managing your portfolio, your financial planner considers all factors, including: A wealth manager takes a comprehensive approach that is especially beneficial for large and complex estate needs. They monitor your accounts regularly to ensure your plan adapts to your life changes or economic conditions. This proactive and holistic approach really set wealth management apart from investment management or basic financial advising. Don't miss the examples of wealth management in action below.Investment Management Definition
Wealth Management Definition
Process for Investment and Wealth Management
Given the different scopes ofinvestment and wealth managers, each process has a considerably different approach regarding management depth.
Investment Management
An investment manager solely focuses on your investment portfolio and considers your financial goals and risk tolerance. In planning your financial future, an investment manager will rebalance a portfolio as needed and adjust for lower risk tolerance the closer you get to retirement age.
Your investment manager should regularly consult with you on life changes and portfolio adjustment needs.
Investment manager compensation is typically through commissions on financial products they sell you. It is vital to ensure theyact as fiduciariesrather than in their financial best interest.
Wealth Management
As a holistic approach, wealth managers have a more substantial process that considers all aspects of your financial health and estate needs. The wealth management process is a fully customized solution designed to achieve your financial goals and reduce stress.
Before all else, wealth management involves fully understanding every aspect of your financial goals. As your life changes, so does this holistic understanding.
Considering all of the elements of wealth management previously listed, your wealth manager dedicates their time to monitoring and reviewing your plan, tapping the appropriate subject matter experts, and discussing life changes with you. Wealth management requires solid and dedicated relationships with clients, and it might also include using experts outside the scope of general investment management, such as lawyers and tax accountants.
Whereas an investment manager will often follow traditional industry practices for managing a portfolio, a wealth manager may consider unique or bespoke strategies to achieve a client’s betterment and financial well-being. An investment manager is retained to manage a portfolio; a wealth manager is there to eliminate financial stress and help you realize your dreams.
Wealth managers are typically paid on a flat-fee structure tied to your portfolio size.
Examples for Investment and Wealth Management
Here are a few examples to give you an idea of the difference between these services and when it might make sense to meet with a wealth manager.
Example of Investment Management
John and Mary want to start investing for their retirement and approach an investment manager to start and manage a portfolio. Their manager considers their age, risk tolerance, and investment goals before recommending investment funds and how to best diversify their new investment portfolio.
There are annual meetings to recommend new products and update John and Mary on portfolio performance.
Example of Wealth Management
Joan is close to retirement. Her wealth manager runs through different scenarios to plot the appropriate course that makes the best financial sense. The manager analyzes her financial needs for using financial assets for retirement and tax liabilities under different strategies. Retirement income and expenses are reviewed to ensure life continues free of financial stress.
Additionally, an estate review by Joan’s advisor ensures:
- Updated preparations are made for the asset base in the event of death or incapacitation
- Insurance needs for retirement are discussed
- Investment assets are adjusted to reflect the coming life change
- Future philanthropy goals are discussed.
So Which Type of Management Do I Need?
The management type that best fits you will come down to the level of assistance and expertise you're looking for. If you’re comfortable managing your estate needs, like family planning, tax strategies, and insurance needs on your own, an investment manager might be your best fit.
Wealth management is your best route if you wish to avoid the financial and personal stress of comprehensive planning or have the complex financial needs associated with larger estates.
Plancorp is a wealth management firm providing its clients with a full range of services. Our Investing by Age series explains how your needs and investment strategies change as you move through the phases of your life, and our full resource library covers many of the other factors we incorporate into planning such as estate planning, tax minimization, and equity compensation.
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Introduction
As an expert in wealth management and investment strategy, I have a deep understanding of the concepts and principles discussed in the article you provided. I have extensive experience and knowledge in this field, which allows me to provide accurate and insightful information on topics related to investment management and wealth management.
Investment Management
Investment management refers to the management of an individual's investment portfolio. It involves developing a short and long-term strategy for the portfolio holdings, considering factors such as risk tolerance and investment goals. Investment managers focus on maximizing the value of the portfolio through various techniques, including asset allocation and rebalancing.
Investment managers work closely with clients to set investment goals and assess their risk tolerance. They also consider the fiduciary standard, which ensures that they act in the best interest of their clients. It's important to note that not all investment managers are equal, so it's crucial to inquire about their fiduciary standard and whether they are dually registered.
Wealth Management
Wealth management takes a more holistic approach to financial planning. It considers not only the investment portfolio but also other aspects of a client's financial picture and estate. Wealth managers consider factors such as income, expenses, insurance needs, retirement goals, estate planning, college savings goals, assets, and tax strategies. They aim to provide a comprehensive plan that aligns with the client's financial goals and reduces stress.
Unlike investment managers, wealth managers take a proactive approach to monitor and review the client's accounts regularly. They adapt the plan to accommodate life changes and economic conditions. Wealth management often involves collaborating with experts outside the realm of investment management, such as lawyers and tax accountants, to provide a more comprehensive solution.
Process for Investment and Wealth Management
The processes involved in investment management and wealth management differ in terms of their depth and scope.
Investment Management Process:
- Investment managers focus primarily on the investment portfolio and its alignment with the client's financial goals and risk tolerance.
- They regularly consult with clients to discuss life changes and adjust the portfolio as needed.
- Investment managers are typically compensated through commissions on financial products they sell.
Wealth Management Process:
- Wealth managers take a more substantial and customized approach that considers all aspects of the client's financial health.
- They thoroughly understand the client's financial goals and adapt the plan as life changes occur.
- Wealth managers dedicate their time to monitor and review the plan, tapping into subject matter experts when necessary.
- They build strong relationships with clients and may collaborate with professionals outside the realm of investment management, such as lawyers and tax accountants.
- Wealth managers are typically paid on a flat-fee structure tied to the size of the client's portfolio.
Examples of Investment and Wealth Management
To illustrate the difference between investment management and wealth management, here are two examples:
Example of Investment Management:
- John and Mary want to start investing for their retirement and approach an investment manager.
- The investment manager considers their age, risk tolerance, and investment goals to recommend suitable investment funds and diversify their portfolio.
- There are annual meetings to review portfolio performance and suggest new products.
Example of Wealth Management:
- Joan is approaching retirement and seeks the expertise of a wealth manager.
- The wealth manager analyzes Joan's financial needs for retirement and tax liabilities under different strategies.
- They review Joan's retirement income and expenses to ensure a stress-free retirement.
- Additionally, the wealth manager conducts an estate review, discusses insurance needs, and adjusts investment assets accordingly.
Conclusion
The choice between investment management and wealth management depends on the level of assistance and expertise required. If you are comfortable managing your estate needs and have a relatively straightforward financial situation, an investment manager may be suitable. On the other hand, if you require comprehensive planning, have complex financial needs, or prefer a holistic approach, a wealth manager is recommended.
It's important to note that Plancorp, the company mentioned in the article, is a wealth management firm that provides a range of services to its clients. They offer customized solutions and cover various factors in financial planning, such as estate planning, tax minimization, and equity compensation.
