Making Sure Your Family Is Okay

If you've heard much about financial and wealth management planning, you may be wondering what differentiates the two concepts. You can look at the differences in the following four ways.

When Each Service is Needed

In the most basic form, the differences are about when people need the two services. Financial planning is something that comes up when individuals and families are still accumulating wealth. You're addressing concerns about how you'll pay for retirement, a vacation home, education for your kids, and other things that check off your climb up the economic ladder.

Wealth management is about the question of what do you do once you've arrived. It applies when you've arrived in the top 1% or even higher in net worth. At this point, basic concerns like your kid's college fund and your retirement are 100% solved and there's little to no risk of that changing. Even many second-tier issues, such as paying for a vacation home, are largely done deals.

Goals

Financial planning is primarily about maximizing returns. The core question is how to make your money work for you to build wealth. A big concern in this process is how much appetite for risk you might have.

Wealth management, on the flip side, is largely about sustainability. In fact, wealth management planning often extends to the question of how to sustain multigenerational wealth. Although a portfolio that includes risk is necessary to stay ahead of inflation, there's less direct risk-seeking as a growth strategy. At this point, your money should be able to make more money on its own.

Mitigation, Protection, and Transfer

Protecting your wealth from taxation is an essential part of wealth management planning. This may include finding tax advantages from how you transfer wealth to your family members, including through estates and trusts. Charitable giving is included in this area, especially when it is used as a vehicle for limiting tax exposure. This requires thoughtful mitigation efforts to avoid traps like exposing massive amounts of wealth to the estate tax when you may have been able to transfer it more efficiently through a trust, for example. Financial planning will not be likely to cover these kinds of concepts.

Education

Finally, wealth management requires educating clients on these different topics. A financial planner might be focused on, for example, explaining the difference between growth and dividend stocks. At a wealth management firm, client education might be directed toward longer-term investments, such as the municipal bond market.