Financial Planning vs Wealth Management: 6 Key Differences

Financial planning and wealth management are two personal finance concepts that overlap for some people. While personal wealth management helps you manage your finances and grow your wealth, “financial planning” enables you to create a specific financial plan to reach your short- and long-term goals. 

To deeply understand these two terms, we have revealed 6 key differences when comparing financial planning vs wealth management in the article. Besides, understanding these two terms is a solid place to help you decide the professional that suits your needs.

Financial planning and wealth management are two key concepts in personal finance 

What Is Financial Planning?

Financial planning is creating a specific plan to help you achieve your goals. This process involves assessing the client’s financial situation, setting clear goals based on time, and developing strategies to accomplish those goals.

Financial planning is essential, whether for short, mid, or long-term goals:

• Short and mid-term financial goals are objectives that you want to achieve in a short period of time, typically from 1 to 3 years, like saving up for a wedding, paying off debt, or saving for a house.
• Long-term financial goals are objectives that you set for more than three years for long-term plans like retirement. 

The goal of having financial wealth planning is typically ensuring that you are in control of your income, expenses, and investments, which means that you have enough money at any given time of your life. Professional financial planning is beneficial in dealing with financial situations. 

7 types of financial planning

See more: What Are The Steps Involved In The Financial Planning Process?

Financial Planning vs Wealth Management: 6 Key Differences

Duties & Services

Although financial planning and wealth management can involve similar services like estate planning or retirement, there are still some differences in their duties and services.

See more: How Much Does Financial Planning Cost? 2023 Latest Update

Here are some examples of services offered by each type of management:

Target Client 

Wealth planning and financial planning are different from their target clients.

Wealth planning is exclusively catered to a wide range of clients, ranging from high-net-worth individuals and families to ultra-high-net-worth (UHNW) individuals and families.

Financial planning works with various clients, including individuals, families, and even corporations, who need help managing their current money and achieving their financial goals.

See more: How To Start A Financial Planning Business?

Costs Involved

One key difference between wealth management and financial planning is the cost involved. Typically, wealth managers charge higher fees than financial planners, mainly because of the following reasons:

• Firstly, wealth managers often provide more comprehensive services than financial planners. Additionally, they have more experience dealing with complex financial and tax situations, so it’s no surprise they charge higher fees.
• Secondly, wealth managers tend to work with high-net-worth and ultra-high-net-worth individuals and families than financial planners, which means that they tend to have a higher income.
• Thirdly, it’s about fees for AUM (Assets Under Management). While wealth managers often charge up to 3% or more of AUM, financial planners charge 2% or less.

An example of Wealth Management vs. Financial Planning Fees

However, the exact fees for hiring a wealth manager or a financial planner could vary, depending on their experience and expertise, education, skills, qualifications, etc.

Education Level

There is no required education to become a wealth manager and a financial planner in accordance with the law. However, each firm will be the one that sets its educational requirements for prospectives.

Wealth managers and financial planners typically have at least a bachelor’s degree, majoring in finance or economics. Many people in these fields even have advanced degrees (such as master’s degrees or even their doctorate) or designations also increase their credentials as wealth managers or financial planners. 

Financial planners can gain an advantage over competitors and beef up their reputation by achieving CFP (Certified Financial Planner) designation. Meanwhile, wealth managers can pursue the Chartered Wealth Manager (CWM) designation.

Necessary Skills

Both wealth managers and financial planners must have enough knowledge of economics in general and finance and accounting in particular to have a deep understanding of financial markets and products. From then, they can develop and customize effective plans and strategies to help clients achieve their goals.

Apart from sales ability, they should have excellent customer service skills to determine customer needs. Furthermore, both must have vital networking and relationship-building skills to help them build long-lasting relationships with clients.

Some other necessary skills both of them must have:

• Communication skills
• Interpersonal skills
• Maths knowledge
• Active listening skills
• Pay attention to detail

Wealth managers must have more advanced knowledge of asset management and business strategy.

4 Factors To Look For In A Financial Advisor or A Wealth Manager

Credentials

Are you looking for a trusted financial advisor or wealth manager? First, you should check their credentials to ensure you are dealing with certified experts.

You can verify advisors’ credentials at the CFP Board’s site if they are financial planners or visit the CWM Board’s site if they are wealth managers. 

However, these credentials do not guarantee that they are competent. In regards, those are still practical and mean they have passed certain levels of education.

Experience

For financial advisors and wealth managers, it could be better to work with an advisor with more than 5 years of experience.

Each financial situation has a unique approach, so you can ask them to check their portfolios, such as recent projects. Or you can ask them to share about a few clients with similar situations with you and how they advised them.

See more: What Are The Steps Involved In The Financial Planning Process?

Fees

The fees are a decisive factor. Make sure you ask about the fees clearly before you sign the contract. While some advisors charge an annual fee, others charge a percentage of the assets they manage for you. Financial advisors typically charge fees around 1% – 2% of assets under management (AUM). Meanwhile, wealth managers can charge up to 3% of AUM. 

The fees can vary depending on the advisor’s expertise, experience, and service quality.

Communication Skills

Financial terms seem complicated and difficult to understand for some people. That’s why having a good advisor with excellent communication skills that could explain all of those terms and understandably for you is crucial. 

Besides, communication skills involve how people communicate with each other and many skills, including active listening, speaking, writing, observing, body language and non-verbal cues, and empathizing. So, an ideal advisor will be a person that listens carefully to your inquiries, catch your needs and provide you with a personalized plan that meets your requirements.

See more: What Is Personal Financial Planning?

Frequently Asked Questions

Which one is best for your business: financial advisor or wealth manager?

A financial advisor is a great choice if you are about to work toward your short, mid-term goals, such as saving up for a wedding, paying off debt, or saving for a house. And for long-term goals, it can be retirement plans. 

Suppose you are a person who wants to manage and invest your money in stocks, ETFs, and other financial instruments. In that case, a wealth manager is the best choice because a wealth manager has experience in dealing with those complex financial situations and investments.

What is the difference between wealth management and financial planning?

There are 6 key differences between wealth management and financial wealth planning, including:

• Duties and services
• Target clientele
• Level of education
• Cost involved
• Necessary skills

Does wealth management fall under finance?

Yes, wealth management is a part of finance. Personal wealth management provides comprehensive services focusing on all aspects of a client’s financial life.

Is CFA good for wealth management?

CFA provides this designation constitute for candidates with high competence in wealth management. So the answer would be yes.

Hopefully, the article Financial planning vs wealth management: 6 key differences give you a better understanding of these two terms. In short, financial planning helps you achieve your financial goals by managing your income and expense. Meanwhile, wealth management considers all aspects of your financial life comprehensively, from managing your current assets to investing them in different financial instruments for growth. 

Are you seeking a trusted financial advisor or a wealth manager who can design a personalized financial plan? Don’t hesitate to contact us by visiting Outsourced Accounting Services. We are willing to assist you.