The terms “wealth management” and “financial planning” are thrown around whenever finances are being discussed, but how do they differ… and are both important strategies for you to apply to your own finances? Yes, they are, but they do have different purposes. In short, “wealth management” deals with preserving and growing your wealth, while “financial planning” helps you plan your day-to-day spending. Understanding the difference between wealth management vs. financial planning can help you make better-informed financial decisions.
What Is Wealth Management?
Wealth management takes a balanced approach to managing your finances. A wealth manager will consider all aspects of your financial life, including:
- Retirement planning
Wealth management aims to help you grow and preserve your wealth over the long term. A professional wealth manager will work with you to develop a financial plan that meets your specific goals and needs.
Advantages of Wealth Management
- The chance to partner with a team of experts
- A comprehensive approach to managing your finances
- A focus on long-term growth
- The ability to customize a plan to meet your specific needs
What Is Financial Planning?
Financial planning is creating an initial roadmap for achieving your financial goals. It involves setting realistic goals, assessing your current financial situation, and developing a plan to achieve those goals.
Financial planning can be helpful whether you’re trying to save for retirement, purchase a home, or pay down debt. A professional financial planner can help you develop a budget, invest your money, and provide insights to help you make other financial decisions.
Advantages of Financial Planning
- Lower fees than wealth management
- More control over investments
- Improved financial health and awareness
- The ability to set financial goals and benchmark your progress
Comparing Wealth Management vs. Financial Planning
Holistic vs. Specific Approach
Wealth management is a holistic approach that considers all aspects of your financial life. Financial planning is focused on helping you achieve specific financial goals.
Long-Term View vs. Short-Term Goals
Wealth management focuses on preserving and growing your wealth over the long term. Financial planning typically focuses on short-term goals, such as saving for a down payment on a home or for retirement.
Active vs. Passive
Wealth management is an active process that involves ongoing monitoring and management of your finances. Financial planning is a passive process that typically only happens once or twice a year.
Which One Is Right for You?
The wealth management vs. financial planning debate is worth having with a professional. They can help you assess your situation and make recommendations based on your specific goals.
Wealth management may be a good option for you if you’re someone who frequently invests, earn a salary in a higher tax bracket, have several streams of income, etc. This is because wealth management focuses on preserving and growing your wealth over the long term. Financial planning may be a better option if you’re working with a limited budget.
What to Look for in a Financial Planner or a Wealth Manager
When picking a wealth manager or a financial advisor, it’s important to do your research. Not all wealth managers and financial advisors have the expertise or experience you’re looking for. It’s crucial to find one who fits your specific needs and goals.
Here are four things to look for when choosing a wealth manager or financial advisor.
Ensure the wealth manager or financial advisor has the proper credentials. They should have a degree in finance or a related field. They should also be licensed to sell securities in your state.
Experience is another crucial factor when choosing a wealth manager or financial advisor. Ideally, you want to work with someone who has at least five years of experience. It helps if their experience is catered to your lifestyle.
Ask about fees before you commit to working with a wealth manager or financial advisor. Some wealth managers charge an annual fee, while others charge a percentage of your assets under management. Financial advisors typically charge an hourly rate or a flat fee.
Make sure you’re connecting with a professional you can trust. To find a financial professional for your military family, start by looking for referrals from other military families or financial professionals you know and trust.
When choosing a wealth manager or financial advisor, consider their reputation. Go through online reviews and see what others are saying about them. Also, check if they have any complaints filed with the SEC or FINRA.
Military Financial Planning and Wealth Management
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This article was originally published October 8, 2020.